SOGEI website background

Inflation expectations and interest rate swap returns

Inflation expectations and interest rate swap returns

Inflation expectations wield great influence over fixed income returns. They determine the nominal yield required for a given equilibrium real interest rate, they influence inflation risk premia, and they shape the central bank’s course of action. There is no uniform inflation expectation metric than can be tracked in real-time. However, there are useful and complementary proxies, such as market-based breakeven inflation and economic data-based estimates. For trading strategies, these two can be combined. The advantage of breakeven rates is the real-time tracking of a broad range of influences. […]