Not only is the market beginning to accept that the rise in inflation is temporary, but expectations for peak inflation have also fallen. From this point of view, it is not surprising that Treasury yields have fallen.
The gradual decline in break-even inflation and the widening gap between two-year and five-year indicators means that the Fed has not begun to explore the urgent need for downsized stimulus. It is not even clear that the market expects inflation to be higher than the Fed's target.
Break-even inflation is not an accurate tool, it depends on two markets with different liquidity. It includes inflation expectations, but it also includes inflation risk premiums. The risk premium is difficult to calculate, and its historical estimates generally vary between-50 basis points and + 100 basis points in normal years, but more in times of crisis. Given that the future path of inflation is more uncertain than usual, the inflation risk premium for break-even inflation should be expected to be unusually high.
So the fact that break-even inflation rates over five, 10 and 30 years converge to around 2.3 per cent does not in itself mean that the market expects average inflation to be 2.3 per cent over the next five, 10 or 30 years. But at least the bond market does not clearly believe that inflation will fall below target again. This is also progress.