Treasury Traders’ Five-Year Inflation Expectations Top 3%

Bloomberg – The breakeven rate on five-year Treasury Inflation Protected Securities, an indication of the pace of consumer-price gains that traders are expecting, topped 3% for the first time on record.

The rate climbed more than 9 basis points to 3.007%, the highest level on record in Bloomberg data going back to 2002. The move follows a surge Thursday.

Thursday’s rally in Treasury Inflation-Protected Securities had all the hallmarks of a surge in buying that overwhelmed supply, even as the government auctioned a record $19 billion of five-year TIPS.

Bond traders are boosting expectations for U.S. inflation to levels not seen in over a decade amid concern supply-chain bottlenecks and resurgent consumer demand will keep lifting the cost of goods and services.

Treasury yields have surged this week, with shorter-maturity rates touching the highest since the start of the Covid outbreak, as concern over quickening inflation drove traders to price in two U.S. interest-rate hikes by the end of next year.