The standard for measuring future U.S. inflation has risen to its highest level in more than a decade
Inflation concerns continue to heat up U.S. government bonds On Friday the market, as traders bet that future price increases will continue to hit their highest levels in more than a decade.
10-year break-even inflation rate-the expected market measure U.S. inflation Ten years later, it rose to 2.76% on Friday, the highest level since 2006. The five-year break-even rate, which measures the five-year inflation rate, rose to 3.15%, the highest level since the data. According to a report by Bloomberg, it returned to 2002.
Rising stakes are the latest example of the impact of Wednesday’s blockbuster Consumer price index Data show that the US inflation rate in October increased by 6.2% from the previous year. In response to the inflation data, U.S. Treasuries were sold off because investors were betting that the Fed would need to raise U.S. interest rates earlier than previously expected.
Since May, the inflation rate in the United States has been at 5% or higher because the supply chain disruption related to the coronavirus has pushed up prices.But investors are disturbed by signs of inflation Widen Across multiple industries, it may weaken the Fed’s perception of price pressure as “temporary“.
The yield on the two-year U.S. Treasury bond, which is sensitive to interest rate expectations, rose by 0.01 percentage point to 0.52% on Friday.Prior to Wednesday, the yield remained at around 0.43%, the largest increase at the time Since the market turmoil in March 2020.
Another closely watched indicator of interest rate expectations, Eurodollar futures, shows that the market currently expects to raise interest rates by 25 basis points for the first time as early as June, and will raise interest rates as many as three times by the end of next year.
Part of the reason for Friday’s inflation expectations reaching such a high level is the continued sell-off of five-year and 10-year US Treasury bonds. The benchmark 10-year Treasury bond yield rose by 0.03 points to 1.58% on Friday.
Although the five-year and 10-year break-even inflation rates have been rising, the actual yields of the two bills have fallen to near historical lows. The real interest rate of national debt is the rate of return after excluding the effects of inflation. The actual rate of return changes with growth expectations, and this week’s decline shows that investors believe that premature interest rate hikes may harm the U.S. economy.
“What we are seeing are two different parts of the market worrying about two possible different outcomes. The breakeven complex says that inflation will continue to exist. Although negative real yields mean there are mid- to long-term growth concerns. This does touch on the problem. The core is whether the Fed is making policy mistakes,” said Ian Lyngen, head of US interest rate strategy at BMO Capital Markets.
At the same time, Wall Street stocks rose slightly on Friday as investors ignored inflation concerns and turned their attention to strong corporate earnings.
The broad S&P 500 index rose 0.5%, and after setting a series of all-time highs this month, it closed down less than 1% this week. Johnson & Johnson, the world’s largest healthcare group, also boosted market sentiment. Announce Spin-off of its consumer business.
Elsewhere, the technology-focused Nasdaq Composite Index rose 0.8%. The Stoxx 600 Index in Europe closed up 0.3%.
Unhedged-markets, finances and strong opinions
Robert Armstrong analyzed the most important market trends and discussed how the best people on Wall Street respond to these trends.register here Send the newsletter directly to your inbox every business day