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Rates: The twilight zone
The outlook for inflation is a key factor underpinning interest rate policy decisions. That outlook can be derived from forecasts, but it can also come from the market discount. Billions if not trillions of dollars underpin that discount, typically with long-term investments. Right now that market discount is quite remarkable - the US 10yr breakeven inflation rate is at a mere 1.5%. This is remarkable as it is so low. It is telling us that US inflation will average just 1.5% per annum over the coming decade. While the ECB could only dream of such a discount, for the US, this is an exceptionally low inflation ... (full story)