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Long-Run Market Inflation Expectations Still Relatively Anchored

US
  • Today’s surge higher in Treasury yields has been driven entirely by real yields (5Y +17bps, 10Y +12.5bps), helping weigh on risk sentiment in the process.
  • It means inflation breakevens have broadly kept to the small decline seen over the past week having popped higher in the second half of July.
  • The 5Y breakeven of 2.68% may be within 20bps of pre-taper levels but remains historically elevated [chart pink line], although the longer-term 5Y5Y breakeven of 2.31% [green] and 5Y5Y inflation swap of 2.58% [yellow] are closer to pre-pandemic levels.

US inflation expectations per text plus WTI 1st future (orange)Source: Bloomberg

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  • Today’s surge higher in Treasury yields has been driven entirely by real yields (5Y +17bps, 10Y +12.5bps), helping weigh on risk sentiment in the process.
  • It means inflation breakevens have broadly kept to the small decline seen over the past week having popped higher in the second half of July.
  • The 5Y breakeven of 2.68% may be within 20bps of pre-taper levels but remains historically elevated [chart pink line], although the longer-term 5Y5Y breakeven of 2.31% [green] and 5Y5Y inflation swap of 2.58% [yellow] are closer to pre-pandemic levels.

US inflation expectations per text plus WTI 1st future (orange)Source: Bloomberg