Bond market expectations about the pace of consumer price increases over the next five years are heading for their biggest one-day pullback in a month.
That suggests traders are wondering how much inflation fears amplified earlier this week, as economic data and policy decisions from Canberra to Ottawa to London helped fuel major moves in bond markets.
It can also be the result of a generally lower level of liquidity in inflation-protected Treasury securities, which can exaggerate the scale of market fluctuations from time to time.
But the inflation swap rate five years from now to five years from now (5Y5Y) that the Federal Reserve often observes is also slipping, indicating that more than just a market mismatch is likely at stake.
Although nominal yield curves have continued to flatten sharply, and part of the United States market has even reversed, the so-called equilibrium rate of TIPS The five-year term has fallen around 3 basis points to 2.95%, while resource prices, as measured by the Bloomberg Commodity index, have fallen the most in a week.
That being said, the implicit market expectation is still close to recent highs and significantly above the level of inflation that Federal Reserve it seeks to target, so the risks around it remain very real.
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