Westpac: Is It Time To Gain Some Inflation Exposure?

Westpac note that "AU 10yr real yields have fallen to new lows, while 10yr breakeven inflation remains higher than the levels reached in the middle of last year. This divergence is historically unusual and is reflected in the "beta" between the two markets falling rapidly in recent weeks. That likely reflects the markets reluctance to add to nominal bond longs at their historical low yield levels at a time when there is significant monetary and fiscal support for the economy. Markets are likely to be pre-empting the potential for these policies to add to inflation in the future. It is definitely very topical this week as we head into the Jackson Hole symposium, where Fed Chair Powell is expected to announce a shift in the Fed approach toward an average inflation target."