March 7, 2021
A financial professional, Chuck (Atsushi) Kawakami (pictured) reported today regarding the expected inflation rate of the market is overshooting. MIRUPLUS introduce the analysis as follows;
The U.S. long-term interest rates have risen to 1.5% range, but short-term two-year government bond rates have not moved. It can be said that only long-term interest rates incorporate the “rising expected inflation”.
As I wrote earlier, the expected inflation rate Breakeven Inflation rate estimated from the market yield curve was 2.22% on March 5. This value has remained almost unchanged from the highest value of 2.24% on February 16, but the yield on 10-year government bonds on that day was 1.31%. It seems that only 10-year government bonds are far ahead.
On the other hand, the expected inflation rate in February by the Cleveland Fed Bank calculation, which includes fundamental data and surveys, was 1.42%, which is still far from the calculated value of 1.71% at the end of December 2019.
Consumer prices are also stable at 1.41% in January, excluding food and energy, which show the actual situation. The recovery of the dollar market triggered by the recent rise in long-term dollar interest rates will also curb the import inflation rate, so it will not be a factor in raising expected inflation.
Furthermore, regarding the employment situation, the number of unemployment insurance recipients is still 4.295 million, and there is still a long way to go to reach 1.775 million at the end of December 2019. In any case, the "expectations" of the market are overshooting.
On the contrary, that happened from winter of 2018 to the following year. This has raised market concerns that the U.S. 10-year Treasury yield is temporarily below the 2-year Treasury yield and that it is "close to recession."
However, the recession did not occur in the end. Looking at the end of 2018, the number of new unemployment insurance applications was about 210,000, which was not a concern.
GDP was also cruising speed of 2.5% in the fourth quarter of 2018, but the market had many participants who overstated the recession. This time as well, it is a market situation where volatility is desired.
The real economy does not move so rapidly, and I believe that interest rates and exchange rates will inevitably have a reaction to eliminate the excess from the current excessive reaction.
Chuck (Atsushi) Kawakami
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