U.S. inflation expectations, which spiked when the Iran war began, have been sliding for more than two months — and technical analysis indicates that reassuring data on price growth this week may be pushing them toward a pivotal breaking point.
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Investors gauge near-term inflation expectations using two-year breakeven rates, calculated as the gap between yields on standard Treasuries and Treasury Inflation-Protected Securities. These breakevens jumped in March and April after U.S.-Iran hostilities erupted, topping out near 3.15% in early May. They then tumbled to around 1.94% before ticking back up as concerns grew over a re-escalation of the conflict.
A decisive move below this support could signal that the market anticipates a return to the calmer inflation expectations that prevailed before the pandemic, when breakevens typically ranged within the 1.0% to 2.0% zone.
What the chart shows:
(Daily markets commentary from Reuters analysts on the signals financial charts are sending — and what they might mean.)
