Skip to main content

Breakeven inflation rates and their puzzling correlation relationships

Buy Article:

$47.00 plus tax (Refund Policy)

It is generally assumed that the two Fisher components of the interest rate – the real interest and the inflation – evolve independently over time, considering that they are driven by unrelated economical events. However, the market pricing of those components deduced from newly-available bond data does not provide conclusive evidence. While studying the price behaviour of inflation-linked (real) bonds beside nominal bonds in the major fixed-income markets, we observe that the Real Bond Yields (RBY) and the yield differentials, the Breakeven Inflation Rates (BEIR), have the propensity to be positively correlated between each other across the various countries, yet are pushed into a negative correlation relationship due to market-related price distortions. As long as those distortions are local, the net result is near-zero correlation within countries; when they become global, as in the heat of the current crisis, the correlations turn negative worldwide. In this article insight is gained by taking an innovative worldwide study approach and thanks to revealing crisis period events.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Data/Media
No Metrics

Keywords: E43; Fisher hypothesis; G15; breakeven inflation; inflation-linked bonds

Document Type: Research Article

Affiliations: 1: Microeconomic and Structural Analysis, Banque de France, 31, rue Croix des Petits Champs Paris 75001, France 2: Amundi Asset Management, Paris, France

Publication date: 2013-06-01

More about this publication?
  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more