Inflation Breakevens for 5 Year Horizon

As of 7/13:

Figure 1: Five year inflation breakeven calculated as five year Treasury yield minus five year TIPS yield (blue, left scale), five year breakeven adjusted by inflation risk premium and liquidity premium per DKW (red, left scale), both in %; and S&P 500 index (black, right log scale). Source: FRB via FRED, Treasury, KWW following D’amico, Kim and Wei (DKW) accessed 6/4, and author’s calculations.

The 5 year breakeven increased by 8 bps going from yesterday to today (I’m taking the “news” as the CPI surprise discussed here); and remains 16 bps below the recent peak on 5/18. That 8 bps increase is pretty substantial since the standard deviation of daily changes is about 4 bps since 2000 (excluding the extreme movements in 2008).

 

Policy Uncertainty Six Months, A.T.*

*  “After Trump” .

Figure 1: US Economic Policy Uncertainty index (news) (blue, left scale), US Trade Policy Uncertainty categorical index (red, right scale), both monthly averages of daily data. NBER defined recession dates shaded gray, NBER peak at dashed line; orange denotes Trump administration. Source: policyuncertainty.com, and NBER.

Part of this decline in uncertainty could be attributable to the economic management team.