Illiquid inflation market in focus

摘要

Following years in the doldrums, euro inflation swap markets suddenly found themselves centre-stage in the run-up to last Thursday's ECB meeting, after Mario Draghi cited the five-year/five-year forward as the metric the central bank uses to define medium-term inflation in the currency bloc. Draghi highlighted the swap slumping below 2% last month in a speech at Jackson Hole, which sparked a strong rally across fixed income markets as hopes for quantitative easing in the eurozone received a shot in the arm. But traders cautioned against relying too heavily on financial markets to gauge future inflation expectations, noting that both index-linked bonds and swaps are relatively illiquid and are liable to present skewed readings.