Inflation expectations spiking today

Inflation expectations in the 10 yr TIPS today are spiking by 10 bps to 2.36%, to the highest since May 3rd and it’s the biggest one day move since Sept (Sept was on a closing basis). Looking at the 5 yr TIPS has the same message, rising 8 bps to 1.97%, the highest since also early May. The 5y5y inflation breakeven is up by 14 bps to 2.96%, a one month high. Specifically since Aug 26th, the implied inflation rate in the 10 yr TIPS is up by 79 bps while the conventional 10 yr is higher by 100 bps. Thus, the rise in interest rates has been a mix of expectations of better growth but certainly also of higher inflation and, right now unquantifiable, likely concerns over debts and deficit.

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