With the recent rise in commodity prices, expectations of US inflation over the next five years rose to a 15-year high on Thursday.
Yields on some US Treasuries hit multi-month highs this week, while demand for inflation-protected bonds kept yields relatively stable. The difference between the two represents the level of inflation needed to equalize the returns between the two.
The yield on the five-year note hit 1.192% on Wednesday, the highest level since March 2020. The yield on five-year inflation-protected bonds is about-1.70%.
The gap between the two reached 2.86 percentage points on Thursday, the highest level since 2005. 10-year and 30-year break-even inflation also reached multi-year highs this week.
"while there is plenty of evidence that current inflationary pressures are temporary, we do expect average inflation next year to be higher than in the past decade," said Peter Chatwell, head of multi-asset strategy at Mizuho International. "this is a paradigm shift."
Oil prices fell on Thursday, but are still close to a seven-year high.