Implicit market expectations for U.S. inflation over the next half decade soared to their highest level in 15 years on Thursday amid the latest surge in commodity prices.
As some US Treasury yields hit multi-month highs this week, demand for inflation-protected Treasuries has kept yields relatively stable. The difference represents the rate of inflation necessary to match your returns.
For five-year maturities, the regular Treasury note yield reached 1,192% on Thursday, the highest level since March 2020.
The 2.86 percentage point difference between the two rates reached Thursday is the highest since 2005. 10-year and 30-year inflation breakeven rates also hit multi-year highs this week.
“While there will be a lot of evidence that current inflationary pressures are transitory, what we see is a higher inflation rate on average next year than we are used to over the last decade,” said Peter Chatwell, head of multi-asset strategy. at Mizuho International Plc. “That is the paradigm shift.”
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