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Treasury Inflation Gauge at Highest Since August on Wages, Oil

Five-year inflation expectations as measured by yields on U.S. government securities rose above 2 percent for the first time in seven months after a report showed the economy added more jobs than forecast in February.

The gap between yields on U.S. government debt and Treasury Inflation Protected Securities with comparable maturities, known as the break-even rate, widened after the Labor Department said the economy added more jobs than forecast in February after trailing estimates the previous two months. Average hourly earnings rose 0.4 percent, the most since June.

Weaker-than-forecast economic data -- including new-home and retail sales in addition to jobs -- spawned a debate about how much was attributable to severe winter storms. The economy averaged 194,000 new jobs per month in 2013.

“It’s particularly wage-inflation related,” said Chirag Mirani, an interest-rate strategist at Barclays Plc, one of 22 primary dealers that trade with the Federal Reserve. “Better economic data lie ahead once the recent weather effects subside.”

The break-even rate reached 2.03 percentage points, the highest since Aug. 7, from 1.98 percentage points yesterday and 1.71 percentage points Dec. 9. Barclays forecasts the rate will rise to 2.2 percentage points by year-end, while the 10-year rate will advance to between 2.4 percentage points and 2.5 percentage points during the period, Mirani said.

The 175,000 jobs gain followed a revised 129,000 increase the prior month, Labor Department figures showed. The median forecast in a Bloomberg survey called for a 149,000 climb.

The severe winter and tension between Russian and Ukraine, a major transit point for Russian gas exports to Europe, has boosted energy prices. Crude-oil futures rose to a five-month high of $105.22 a barrel this week from $99.88 a month ago.

Rising inflation expectations come from “energy, part of it coming from the Crimea, part of it from the very cold weather,” said Aaron Kohli, an interest-rate strategist at primary dealer BNP Paribas SA in New York. “While it’s a positive sign, it by no means suggests TIPS are about to go on a tear.”

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Kenneth Pringle, Greg Storey

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