Reuters reports that euro zone inflation expectations among bond investors hit their highest levels in years, putting additional pressure on the ECB and its insistence on maintaining crisis-era stimulus.
The German 10-year breakeven inflation rate, which represents the difference in yield between a nominal bond and its inflation-indexed counterpart, rose to around 1.81%, the highest since April 2013.
A similar gauge in the United States held at its highest level since August 2006 at 2.64%.
“What’s noticeable as well is that these higher inflation expectations aren’t simply concentrated for the next few years of the time horizon, since the 5y5y inflation swaps that look at expectations for the five-year period starting in five years’ time have also seen substantial increases,” said Deutsche Bank chief strategist Jim Reid.
He was referring to the five-year, five-year forward inflation swap, a key market gauge of long-term euro zone inflation expectations, which was at its highest since September 2014 at 1.9489% on Friday.