• Inflation expectations have slowly edged up in recent weeks, after reaching a low in June 2017. As the chart highlights, for example, the 5-year Breakeven Inflation Rate, which represents expected inflation over the 5-year period, has risen approximately 5 bps year to date and has nearly reached the 2% mark.19 Longer-term inflation expectations have remained just above 2% since the start of 2018.19
  • Price expectations moved higher primarily on account of firming oil prices, which reached a three-year high this week, but also with continued solid economic data across the developed world and optimism surrounding the recently signed U.S. tax plan.24
  • The yield on the 10-year Treasury note has risen for many of the same reasons as inflation expectations. This week, it neared the upper end of the 2.2%–2.6% band inside which it has traded since early 2017.25
  • Even taking recent upward trends into account, however, each measure remains well in check when looking at them over a longer time period.
  • Inflation expectations moved briefly above 2% in early 2017, but dipped back down through the remainder of the year and remain well below their post-crisis average.19 Likewise, the 10-year Treasury note remains within its recent cyclical trading range.25 Even after the Fed’s five rate hikes this cycle, however, the measure is comfortably under its post-crisis high.

1 Federal Reserve Bank of St. Louis, DJIA, http://bit.ly/2jZjDYt.
2 Federal Reserve Bank of St. Louis, WTI, http://bit.ly/292Tgue.
3 U.S. Census Bureau, http://bit.ly/Y4FaTF.
4 Federal Reserve Bank of St. Louis, S&P 500, http://bit.ly/2d3pN5b.
5 ICE BofAML U.S. High Yield Master II Index.
6 Thomson Reuters Lipper.
7 ICE BofAML U.S. High Yield Master II Index (yield-to-worst).
8 Credit Suisse Leveraged Loan Index.
9 U.S. Energy Information Administration, http://bit.ly/1V2gPZQ.
10 U.S. Energy Information Administration, http://bit.ly/2e0fwZV.
11 ICE BofAML U.S. High Yield Energy Index.
12 Credit Suisse Leveraged Loan Index (energy component).
13 ICE BofAML U.S. High Yield Energy Index (yield-to-worst).
14 Credit Suisse Leveraged Loan Index (energy component, yield-to-a-three-year maturity).
15 Econoday, http://bit.ly/1iJOdAP.
16 Federal Reserve Bank of St. Louis, 10-year yield, http://bit.ly/29ecBfp.
17 The Wall Street Journal, http://on.wsj.com/2DnUoZB.
18 The Wall Street Journal, http://on.wsj.com/2AUIkw3.
19 Bloomberg, based on the 5-year and 10-year breakeven inflation rates.
20 Federal Reserve Bank of St. Louis, 2-year yield, http://bit.ly/2anGvQ0.
21 Bureau of Labor Statistics, http://bit.ly/2jKLr2f.
22 Bloomberg, based on CME data.
23 Federal Reserve Bank of St. Louis, 10-year minus 2-year, http://bit.ly/2oMWaP2.
24 Federal Reserve Bank of St. Louis, WTI oil prices, http://bit.ly/292Tgue.
25 Federal Reserve Bank of St. Louis, 10-year Treasury note, http://bit.ly/29ecBfp.

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