Reflation Bets Hinge on Signal That the Fed Could Be Distorting
- Breakeven inflation rates hit highs, prompting risk-taking
- Fed’s bond buying may be skewing the TIPS market, BIS says
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If you’re buying every risky asset in sight because you think Treasuries are screaming that inflation is finally coming back, beware. You might be acting on a false signal triggered by the Federal Reserve’s massive presence in the bond market.
Back in mid-February the breakeven rate on 10-year Treasuries, a favorite inflation gauge tracked by investors, hit the highest level since 2014. Its rise has encouraged many to see a rosy economic outlook and amp up reflation bets.