Chart of the week

After an early-year surprise, inflation expectations and Treasury yields moderate

Year-over-year change in inflation expectations and Treasury yields

April 6, 2018 | 1 minute read
  • January’s average hourly earnings report showed that wages rose at their fastest pace since 2009 and appear to have started this year’s uptick in volatility.1 Investors feared rising wages would motivate the Federal Reserve to raise interest rates faster than projected in an effort to tamp down inflationary pressures.
  • In the wake of the report, both inflation expectations and U.S. Treasury yields rose rapidly through February. The 5-year breakeven inflation rate, which measures expected inflation, rose to approximately 2.15% while the yield on the 10-year U.S. Treasury note peaked at nearly 3%.2,3
  • More recently, both measures have moderated considerably as inflation data has softened and new sources of volatility have arisen.
  • Five-year inflation expectations, for example, have declined to approximately just 2.1% while the yield on the 10-year U.S. Treasury note sits near the lower end of its recent 2.8%–2.9% trading range.2,3
  • Additionally, policymakers don’t see considerable upward moves this year, potentially making 2018 another year that could challenge those seeking income.4

  • Bureau of Labor Statistics,

  • Federal Reserve Bank of St. Louis, 5-year breakeven inflation rate,

  • Federal Reserve Bank of St. Louis, 10-year U.S. Treasury note,

  • Federal Reserve, In their most recent Summary of Economic Projections, the FOMC maintained their median estimate of three rate hikes in 2018, rather than adjusting their projections to four as many investors had expected.

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