July 22, 2022 18:37 GMT
- Real yields have dominated the belly-led rally in Treasuries today, a reversal from much of yesterday when inflation breakevens led the way lower.
- 5Y real yields have slid -11bps (nominal -10bps) with the catalyst being the service PMI miss and the composite PMI at the lowest levels since 2009 or the depths of the pandemic.
- Interestingly, the slide in real yields to +30bps takes it back towards levels seen after the first of the recent growth scares from the ISM manufacturing survey for June showing the first contraction in new orders since May’20, only for it to reverse course a few days later when ISM services came in much stronger.
- Little change in the breakeven sees at 2.58% sees it 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, helping give the Fed some comfort despite the latest ramp higher in actual CPI inflation.