Can you go a little further on your inflation comment? What part of the inflation metrics do you think will not decrease as fast as expectations? From my understanding, swaps are normally used as a hedge, so would the inflation swap activity be perceived as producers/manufacturers anticipating deflation?
Thank you for the putting in the time to produce this content, its very interesting and educational.
Great question. CORE inflation is unlikely to decelerated as fast as expected. This creates a risk for headline to also surprise to the upside if food and energy rally given how much headline has fallen relative to CORE. To your comment on swaps, kind of. Swaps price CPI and can sometimes deviate from breakevens. I am functionally using them interchangably though in this instance though. The inflation swaps allow you to bet on a specific driver of bonds (inflation as opposed to real rates which would be TIPs).
Thanks for the kind words. Please feel free to ask questions anytime!
great take, thank you, keep it rocking!
Awesome report. Thanks 😊
Hope you can do this report regularly.
Can you go a little further on your inflation comment? What part of the inflation metrics do you think will not decrease as fast as expectations? From my understanding, swaps are normally used as a hedge, so would the inflation swap activity be perceived as producers/manufacturers anticipating deflation?
Thank you for the putting in the time to produce this content, its very interesting and educational.
Great question. CORE inflation is unlikely to decelerated as fast as expected. This creates a risk for headline to also surprise to the upside if food and energy rally given how much headline has fallen relative to CORE. To your comment on swaps, kind of. Swaps price CPI and can sometimes deviate from breakevens. I am functionally using them interchangably though in this instance though. The inflation swaps allow you to bet on a specific driver of bonds (inflation as opposed to real rates which would be TIPs).
Thanks for the kind words. Please feel free to ask questions anytime!
Interesting. I never thought about inflation swaps in that sense, but I am curious to read about how that signal evolves in your analysis.
I am sure there will be many more questions in the future, looking forward to more of your work.