At Any Rate
Global Rates – Discussing the divergent drivers of US and EUR breakevens
Mar 21, 2025
Francis Diamond and Phoebe White delve into the fascinating world of inflation markets. They discuss the conflicting trends in DM inflation breakevens, with European rates rising due to Germany's fiscal shifts. Meanwhile, US breakevens appear to be undervalued, presenting unique opportunities. The duo also analyzes the UK’s inflation, driven by surging energy prices, and its implications on central bank policies. A captivating exploration of global economic dynamics awaits!
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Quick takeaways
- U.S. inflation break-evens are shifting due to new tariffs and changing growth expectations, signaling rising inflation risks amidst lower nominal yield forecasts.
- In the Euro area, fiscal policy changes in Germany are recalibrating inflation break-evens, highlighting diverging macroeconomic drivers compared to U.S. trends.
Deep dives
U.S. Inflation Expectations and Market Dynamics
Recent developments in U.S. inflation break-evens indicate a significant shift, primarily driven by changes in growth expectations amidst new tariff regulations. The introduction of tariffs on imports from China, Canada, and Mexico has influenced economists to revise inflation forecasts upward while simultaneously adjusting growth estimates downward. This evolving landscape leads to a market perception of inflation risks skewed to the upside, yet the nominal yield forecasts have been lowered to reflect anticipated economic challenges. As demand for inflation protection rises, particularly as traders position for tariff impacts, the front end of the U.S. inflation curve is expected to exhibit stronger performance.
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