US inflation expectations, as measured by the 10-year breakeven inflation rate, per the St. Louis Federal Reserve (FRED) data, rallied to the fresh high since June 02 while flashing a 2.43% mark on Thursday.
In doing so, the risk barometer rejected the early week’s pullback while extending the recovery moves from July 19.
The run-up in inflation expectations could be linked to the US Q2 GDP data that recently justified the Fed’s cautious approach before announcing the taper. The first reading of the second-quarter growth figures eased below 8.5% market consensus to 6.5% QoQ, versus 6.4% prior. However, the consumer spending details remain robust and suggest economic recovery. In addition to the GDP, upbeat weekly Jobless Claims and further softening of the housing data also convinced market players of further easy-money policies from the Fed.
It should be noted, however, that the coronavirus woes and the US data may tax the inflation expectations going forward, by way of weighing on the market’s sentiment.
That said, the US 10-year Treasury yields followed the inflation expectations to the north the previous day before recently consolidating gains around 1.25%, down 1.8 basis points (bps).
Although the Fed seems firm in its tapering commitments, today’s Core Personal Consumption Expenditure Price Index for June will be the key after the latest easing of GDP and housing figures.
Read: US Core Personal Consumption Expenditure Price Index June Preview: Bad will not be bad enough