Financial Market Signals

Five year inflation breakeven shrinks, ten year – three month spread dives, TIPS and expected real rates rise above zero. The S&P500 and Bitcoin falls even as VIX remains at sub-Trump levels.

Figure 1: Five year inflation breakeven, 5 year Treasury minus 5 year TIPS (blue, left scale), 5 year breakeven adjusted for both inflation risk and liquidity premia, per DKW (red), both in %. NBER defined recession dates shaded gray. Source: Treasury via FRED, KWW per DKW, NBER, and author’s calculations.

Figure 2: Ten year – three month Treasury spread (blue), ten year – two year spread (red), both in %. NBER defined recession dates shaded gray. Source: Treasury via FRED, NBER, and author’s calculations.

Figure 3: Ten year TIPS (blue), expected real short rates for ten years, per DKW (red), both in %. NBER defined recession dates shaded gray. Source: Treasury via FRED, KWW per

Keep reading this article on Econbrowser Blog - James Hamilton & Menzie Chinn.

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