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Jump In Real Yields Keeps Inflation Breakeven Under Control

US
  • The front end of the Tsy curve took the brunt of the CPI sell-off but 5Y and 10Y nominal yields have also been pushed higher by large increases in real yields (5Y +10bps, 10Y +6bps), weighing on risk assets and supporting the USD whilst helping the Fed by tightening financial conditions.
  • At 1.02% (session high of 1.06%), the 5Y real yield is at levels last seen in late 2018 and before that 2011, keeping a lid on the inflation breakeven for a 4.5bp increase to 2.60% -- that's within 10bps of post-Ukraine war lows and therefore relatively well-anchored, despite the continued strength in potentially persistent inflation components.

5Y real yield (green), DXY index (purple), 5Y nominal (white) and breakeven (yellow)Source: Bloomberg

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  • The front end of the Tsy curve took the brunt of the CPI sell-off but 5Y and 10Y nominal yields have also been pushed higher by large increases in real yields (5Y +10bps, 10Y +6bps), weighing on risk assets and supporting the USD whilst helping the Fed by tightening financial conditions.
  • At 1.02% (session high of 1.06%), the 5Y real yield is at levels last seen in late 2018 and before that 2011, keeping a lid on the inflation breakeven for a 4.5bp increase to 2.60% -- that's within 10bps of post-Ukraine war lows and therefore relatively well-anchored, despite the continued strength in potentially persistent inflation components.

5Y real yield (green), DXY index (purple), 5Y nominal (white) and breakeven (yellow)Source: Bloomberg