Deflation Warning Sounds as 2-Year Break-Even Rates Go Negative
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Even with the Federal Reserve reminding investors that policy makers remain on course to raise interest rates next year, one corner of the bond market is warning of the risk of deflation.
The difference in yields between Treasury two-year notes and comparable maturity inflation-indexed securities turned negative yesterday for the first time since the aftermath of the global financial crisis in 2009. The measure, known as the break-even rate, is generally seen as reflecting investors’ expectations for inflation over the life of the securities.