BLOOMBERG — Bond investors kept expectations for U.S. inflation on balance this week and U.S. stocks advanced, indicating greater financial market confidence in a soft landing for the economy after seven hikes in interest rates by the Federal Reserve.
Even with another rate hike expected this week, the five-year breakeven rate — a proxy for inflation expectations — rose to about 2.3%, the highest since November, from a recent low on Jan. 18.
A similar gauge for 10-year inflation-indexed bonds rose to 2.32% on Friday (27th), up from 2.24% the previous week. It fell below 2.10%, its lowest level in nearly two years, on Jan. 18, helping lower the market.
A month-end realignment of bond indices to include newly issued Treasury inflation-protected bonds has the potential to increase demand for them, an additional factor for breakeven points this week. The Bloomberg Indexes The duration of the US TIPS index is projected to rise 0.26-year above the average.
Meanwhile, investors withdrew a total of $490 million from the top five inflation-linked exchange-traded funds on Thursday, the largest such outflow since early December, according to data compiled. Bloomberg News.
Economic indicators suggest that price pressures are easing. Respondents to a University of Michigan survey recently upgraded their short- and long-term U.S. inflation expectations. Even the central bank’s discretionary inflation measures eased to the slowest annual pace in more than a year in December, according to data released on Friday.
Central bank officials continued to warn against inflation still unacceptably above the central bank’s 2% target as economic data clears the way for policymakers to further reduce the pace of hikes.
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