Inflation expectations in the U.S. have continued to decline and the 30-yr break even inflation rate falling to the lowest level since 2011 on Wednesday. Falling oil prices are behind the decline in inflation expectations, which in turn cap treasury yields. The prospect of low inflation in the U.S. would not allow the Fed to bring forward the first rate hike.According to Morgan Stanley’s Jonathan Mackay, “The primary reason for inflation expectations falling in the U.S. is the fall in energy prices. That is keeping bond yields down.”The yield on 10-yr U.S. bond rose 2bp to 2.34% while that on the policy sensitive 2-yr U.S. bond edged up 1.7bp to 0.53%.
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