'Breaks' and CPI seasonality ...
ahead of CPI, a chart to consider; it's NEVER really different this time ...
Having seen / heard all about how the bond market ‘had a bad year, last week’, I thought this mornings CoTD from large German bank was interesting…
Breakevens and CPI seasonality
Our seasonality analysis of US 10y breakevens reveals a pattern that inflation expectation tends to widen early in the year before bottoming out during the summer months. Using Census Bureau X-13 model, we extracted seasonal components of 10y breakevens over a sample period starting from 2010. This pattern is corroborated by the CPI seasonality factor with an appropriate lag as indicated by the red line in the figure below. Both CPI and breakevens seasonal factors point to a local peak in March and a trough between August and October.
If history is any guide, we would expect the same behavior to materialize again, especially given our view that year-over-year change in consumer prices is peaking.
Breakevens seasonality favors higher inflation expectation in Q1
This echos what I passed along over the years from THE original best in this biz — David Ader — Feb 20, 2021 I OFFERED — note the final bullet,
Don’t Count Out SEASONAL PATTERNS TO PREDICT RATES — Yields tend to rise into May and June, and drop toward the end of year; 2017 may be no exception.
SO while this mornings CPI will most certainly be a shock to the system, the SEASONALITY of it all remains a well trodden path, at least for stratEgerists which those who invest trillions, trust…
In other words, it’s NEVER really DIFFERENT THIS TIME. No matter WHO says it and HOW they say it…