Inflation expectations fell to 2.20% on CPI day, even as the 10-year yield rose

Bond yields jumped on CPI day, yet inflation expectations slipped to 2.20%. That's the lowest since 28 July.

Here's what caught my eye. The US 10-year Treasury yield rose 0.10 percentage points to 4.98% on 10 Nov.

Split it in two. The real yield, the part left after inflation, rose 0.12 to 2.78%. Breakeven inflation, the gap between the two, dipped 0.02.

So the whole move was real yield. The market didn't price more inflation after the print. It priced money staying expensive for longer. To me that reads as higher-for-longer, not an inflation scare. My view, not a forecast.

The real yield hasn't been this high since 19 October. Breakeven inflation peaked at 2.50% on 4 May and is down 0.30 since.

The catch: cheaper oil can drag inflation expectations down on its own. So a falling breakeven isn't proof the market trusts the Fed more.

What I do after any big data day: split the 10-year move into real yield and breakeven. If real yield did the work, it's a rates story. If breakeven did, it's an inflation story.

Which one do you watch when yields jump, the real yield or the breakeven?

Not advice. I may hold positions in the names mentioned.

Stop guessing. Start calculating.

Live to fight another day. 🤙

#Bonds #Inflation #Rates #Macro