SocGen Quants On Stability In US 10 Year Inflation Break-Evens

Quantitative Strategy team of Societe Generale had interesting observations yesterday:

Stability in US 10Y inflation break-evens signals overshoot in equities and curves
- Our model fair value for inflation break-evens is related to the global market factor and to the inflation factor, which includes a strong exposure to yield curves.
- The combination of the past few months’ bull market and of the recent steepening of yield curves has therefore led to a rise in our short-term fair values for inflation break-evens. Meanwhile, market values remained unchanged or even decreased.
- Fair values would correct towards zero inflation if the recent bullish trend inverted, bringing stocks back to the nadir of the recent V-shape. The correction could also come from a flattening of yield curves.

Click on chart to enlarge, courtesy of Societe Generale.

Yeaa, look at equities via 10 year inflation linkers ...