Investors are betting that an aggressive push by the Federal Reserve to revive the US economy could drive up inflation, with Treasury bond markets pricing in the effects of a full-blown return to emergency monetary easing next month.
Inflation expectations in the US have jumped sharply this week, with one measure rising to its highest level since late June. So-called breakeven inflation rates, which are the bond market’s expectations of future inflation levels, have leapt on the growing belief that the Fed will initiate a fresh round of quantitative easing at the November meeting of its interest rate-setting committee.
Breakeven rates reflect the difference between yields on cash Treasury bonds and those of Treasury inflation protected securities, or Tips.