US inflation expectations have declined significantly over the past six weeks. 30-year breakeven inflation is now just 1.59% after hitting a high of 1.86% on 4/29/16. 10-year breakeven inflation has moved from 1.71% to 1.47% and 5-year breakeven inflation has gone from 1.61% to 1.47%. In addition to the overall lowering of inflation expectations, 5-year and 10-year breakeven inflation expectations are now equal for the first time since July 2008. This is in contrast to an average spread of 36 bps from 2008-2015. Lastly, the 5-year, 5-year forward breakeven inflation rate ( Ben Bernanke’s favorite inflation indicator when he was chairman of the Fed) has fallen to just 1.44%. It is just above the lows of 1.41% hit in February but otherwise its at the lowest level since 2009.
