Inflation breakevens at a new cyclical high

5-year/5-year highest since late 2018

Chart of the Day

The US 5-year/5-year forward inflation breakeven rate rose by just 2 bp yesterday, but that was still enough to take it to a new high for this cycle, at 2.27%. There is some concern that the inflation breakeven isn’t a true gauge of market inflation expectations, because it may be being influenced by the Fed’s disproportionate purchases of inflation-linked bonds. Nonetheless, given commodity prices have been rising, the increase is probably partially down to higher inflation expectations.

Macro

US house price inflation accelerated to 12.0% in February. Over the past three months, annualized house price growth has been 15.6%, which is a touch slower than at the start of the year.

The US Conference Board measure of consumer confidence rose in April. Consumers' expectations and assessment of the present situation both improved.

Markets

US yields rose yesterday. The US 10-year yield has risen by 6 bp in the past week, the 5-year has risen by 8 bp and the 30-year has risen by 3 bp.

Higher inflation breakevens have pushed real rates down - US 5-yr/5-yr real rates have fallen by 13 bp in the past month, while in the eurozone they have risen by 14 bp.

Corporate borrowing costs have continued to fall - US junk-rated corporate bond yields have fallen by 16 bp in the past month and investment-grade yields have fallen by 6 bp.

Copper keeps on going - now up by 12.3% in the past week, while iron is up by 0.3%.

As does ethereum - Bitcoin is currently down by 2.6% in the past week, and down by 4.5% in the past month. Ethereum is up by 46.5% in the past month.

Among precious metals, palladium is now the top performer since 2020. Moves the past week have ranged from flat for gold to a rise of 7.1% for palladium.

Gold has risen over the past month though, helped by the fall in real yields.

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