US: Inflation expectations surging higher - ANZ

Research Team at ANZ, notes that the US 10-year inflation expectations, as priced in the inflation-indexed bond market, have risen half a percent in 3 months, and got a 7bp lift overnight.

Key Quotes

“Higher inflation expectations are of course exactly what central banks have been trying to bring about for years. But one does wonder whether amongst the central bankers’ high-fives there may be some furrowed brows. Investors and financial markets have become very used to nominal interest rates being at exceptionally low levels over the past 8 years – indeed, many traders have experienced no other paradigm. Bond markets have already taken a lot of pain as rates rocketed in November – US 10-year yields have risen 52bp. But that yield is still 66bps off its 2014 highs, and 135bps below its 2011 highs. OPEC say and OPEC do are quite different things of course. But for now, things are all pointing in one direction. And higher interest rates are bad for asset prices, all else equal.”