10-Year Breakevens Highest Since 2014

With the government spending so much money, I’ve been concerned about a resurgence of inflation. So far, there hasn’t been much evidence of higher prices. Still, I’m not the only one who’s concerned.

I like to follow the “breakeven” rates. This is basically the market’s view of expected inflation. It’s the difference between, in this case, the 10-year Treasury yield and the 10-year Inflation Protected bond. The Federal Reserve often discusses the breakeven rates since the central bank doesn’t want to see expectations get out of control.

During the worst part of the market crash last year, the 10-year breakeven rate fell to 0.5%. That’s very low. Since then, it’s rallied much higher. The breakeven rate has recently gotten as high as 2.22%. That’s the highest in six-and-a-half years (see below).

This morning, the government said that inflation rose by 0.3% in January which matched expectations. The core rate was unchanged.

Posted by on February 10th, 2021 at 12:42 pm


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