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Market Inflation Expectations Unwind Post CPI Climb

US
  • Moving beyond the 10Y TIPS auction, real yields have swung today to currently sit little changed on the day with the move in nominal yields instead driven by a lower inflation breakeven.
  • The move is even more pronounced in the belly, with the 5Y breakeven -10bps at 2.58% as it unwinds the drift higher since last week’s CPI and with risk sentiment firming over that period.
  • It’s still off recent lows of 2.48% but still helps reinforce the sizeable decline in the inflation breakeven from 2.95% prior to the Jun FOMC to back close to pre-taper levels.
  • The separate 5Y5Y inflation swap is also close to recent lows and at 2.40% is close to the ballpark of being consistent with 2% PCE.

5Y5Y inflation swap (yellow), 5Y breakeven (white), and differentialSource: Bloomberg

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  • Moving beyond the 10Y TIPS auction, real yields have swung today to currently sit little changed on the day with the move in nominal yields instead driven by a lower inflation breakeven.
  • The move is even more pronounced in the belly, with the 5Y breakeven -10bps at 2.58% as it unwinds the drift higher since last week’s CPI and with risk sentiment firming over that period.
  • It’s still off recent lows of 2.48% but still helps reinforce the sizeable decline in the inflation breakeven from 2.95% prior to the Jun FOMC to back close to pre-taper levels.
  • The separate 5Y5Y inflation swap is also close to recent lows and at 2.40% is close to the ballpark of being consistent with 2% PCE.

5Y5Y inflation swap (yellow), 5Y breakeven (white), and differentialSource: Bloomberg