On this page is an inflation expectations calculator. Using breakeven rates on nominal and inflation adjusted notes in constant maturity debt, we show the market’s inflation expectations. What are current inflation expectations? Below is the inflations expectations tool showing the market’s current prediction for forward inflation. Numbers are annualized, in percent, over the next x […]
A lot of recent financial news has focused around the spreading European sovereign debt crisis. The big question many Americans now try to answer is what this means for them on a day-to-day basis. At the same time as this is happening, the Fed has declared that they will endorse a policy of more transparency, opening up their forecasts to scrutiny and understanding.
One of the things we like to do here at Don’t Quit Your Day Job is to reveal interesting things hiding in plain sight. One of those things: subtracting the Daily Treasury Real Yield rate from the Daily Treasury Yield rate gives you a good idea of the market’s expectations of inflation. Even though media prognosticators won’t agree on whether we’re in for a deflationary era, hyperinflation, or a whole lot of nothing, you can get a reasonable prediction from market data. Our explanation is below, along with the limitations of this method.
I haven’t recently taken a look at what the Treasury market is telling us about inflation… but that’s now changed, and I’m here to share with you. The market predicts continued smooth sailing on the currency front. My method is the very crude subtract real treasury yields from the yield curve. Currency stability is probably here to stay in the meantime, what with the only reasonable alternative in flux and everything… and the market reflects that truth.
Every once and a while I like to check in on the market’s inflation predictions. This is for my own personal curiosity, and possibly to entertain you, dear reader. You’ll be interested to know that inflation expectations have tempered somewhat over the last few weeks; it all goes to show that throughout all of the howling on raising debt ceilings and mudslinging in politics, the market still believes in the general stability of the United States dollar. My method is the classic “subtract real treasury yields from the yield curve rates”. All information is available at the U.S. Treasury’s web site.
As noted in a CNN article today, one way to gauge the market’s reading of current conditions is by reading the bond yields. Twice I’ve taken a look at how you can use Treasury Inflation Protected Securities plotted with the Daily Treasury Yield Curve to get a glimpse at the market’s inflation expectations (TIPS adjust their value due to CPI). Some other interesting ratios are presented, the treasury yield curve on its own, and the spread between junk bonds and government debt.