The Sudden Collapse of Inflation Expectations

October 15th, 2014 by

One situation we've been monitoring closely (even before the recent market activity) and has only just started to become a bit dramatic: the rapidly declining inflation expectations among market participants. One way to follow this measure is to follow the 'breakevens'; by subtracting real yields on inflation protected securities from treasuries, you can graph the point where the market has converged on inflation expectations.

Since June 24th, those expectations have dropped precipitously:

The 5-year has dropped .68 percentage points, or ~33% in 3.5 months.

We have, of course, created an inflation breakeven calculator if you want to track this information easily (and graphically!).

Here are the raw numbers (annualized percentages):

DATE	5 YR	10 YR	20 YR	30 YR
06/24/14	2.05	2.28	2.36	2.37
06/25/14	2.03	2.28	2.36	2.35
06/26/14	2.02	2.27	2.35	2.36
06/27/14	2.03	2.27	2.35	2.35
06/30/14	2	2.26	2.34	2.35
07/01/14	2	2.26	2.33	2.35
07/02/14	2.01	2.26	2.35	2.34
07/03/14	2.03	2.28	2.37	2.37
07/07/14	2.01	2.27	2.35	2.36
07/08/14	1.99	2.27	2.35	2.36
07/09/14	1.98	2.29	2.36	2.38
07/10/14	2	2.28	2.36	2.38
07/11/14	1.99	2.28	2.37	2.37
07/14/14	1.99	2.27	2.36	2.37
07/15/14	1.96	2.25	2.35	2.36
07/16/14	1.95	2.23	2.33	2.35
07/17/14	1.97	2.23	2.33	2.34
07/18/14	1.96	2.24	2.33	2.34
07/21/14	1.97	2.24	2.34	2.34
07/22/14	1.93	2.23	2.32	2.33
07/23/14	1.92	2.23	2.32	2.33
07/24/14	1.93	2.27	2.42	2.35
07/25/14	1.95	2.28	2.37	2.36
07/28/14	1.95	2.28	2.36	2.35
07/29/14	1.94	2.27	2.35	2.35
07/30/14	1.96	2.28	2.35	2.36
07/31/14	1.97	2.29	2.36	2.36
08/01/14	1.92	2.27	2.35	2.36
08/04/14	1.9	2.25	2.34	2.35
08/05/14	1.9	2.24	2.34	2.34
08/06/14	1.9	2.25	2.34	2.34
08/07/14	1.89	2.24	2.34	2.33
08/08/14	1.86	2.25	2.33	2.32
08/11/14	1.86	2.25	2.33	2.32
08/12/14	1.87	2.24	2.32	2.31
08/13/14	1.88	2.23	2.31	2.3
08/14/14	1.84	2.21	2.3	2.31
08/15/14	1.83	2.18	2.28	2.29
08/18/14	1.85	2.18	2.28	2.3
08/19/14	1.81	2.17	2.28	2.28
08/20/14	1.83	2.17	2.27	2.28
08/21/14	1.8	2.17	2.27	2.28
08/22/14	1.79	2.14	2.3	2.28
08/25/14	1.78	2.15	2.3	2.27
08/26/14	1.83	2.14	2.25	2.27
08/27/14	1.8	2.14	2.24	2.26
08/28/14	1.77	2.13	2.24	2.26
08/29/14	1.76	2.12	2.22	2.25
09/02/14	1.76	2.15	2.3	2.27
09/03/14	1.77	2.17	2.31	2.26
09/04/14	1.76	2.17	2.31	2.27
09/05/14	1.77	2.15	2.25	2.26
09/08/14	1.74	2.13	2.24	2.26
09/09/14	1.71	2.11	2.27	2.26
09/10/14	1.69	2.1	2.25	2.24
09/11/14	1.76	2.12	2.23	2.26
09/12/14	1.75	2.13	2.23	2.25
09/15/14	1.73	2.13	2.23	2.25
09/16/14	1.75	2.12	2.23	2.25
09/17/14	1.63	2.06	2.19	2.21
09/18/14	1.56	2.02	2.21	2.19
09/19/14	1.56	2.03	2.19	2.18
09/22/14	1.6	1.99	2.11	2.15
09/23/14	1.63	2.02	2.14	2.17
09/24/14	1.66	2.03	2.15	2.18
09/25/14	1.62	2.02	2.13	2.16
09/26/14	1.59	1.97	2.09	2.13
09/29/14	1.61	1.95	2.06	2.1
09/30/14	1.56	1.97	2.09	2.11
10/01/14	1.6	1.96	2.07	2.11
10/02/14	1.57	1.95	2.07	2.11
10/03/14	1.56	1.93	2.05	2.09
10/06/14	1.55	1.93	2.04	2.08
10/07/14	1.52	1.92	2.02	2.06
10/08/14	1.54	1.96	2.07	2.1
10/09/14	1.52	1.97	2.07	2.11
10/10/14	1.52	1.96	2.06	2.1
10/14/14	1.41	1.92	2.07	2.07
10/15/14	1.37	1.86	1.99	2.04

PKPK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools. 
 
 PK lives in New Hampshire with his wife, kids, and dog.

The Sudden Collapse of Inflation Expectations

PK

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