What market break-evens do and don’t tell you about inflation fears

IF YOU HADTIPS to pick an emblem of the wild ride that financial markets have been on, it would be Carnival. When the pandemic took hold, its cruise ships were regarded as floating petri-dishes. Yet last April it was able to raise capital, as the corporate-bond market thawed. More recently it raised $3.5bn at half the interest rate that it paid last year. Now all the talk is of pent-up consumer demand and the inflation that will unleash. Carnival’s bookings for the first half of 2022 are above their level in 2019. The company has captured the market zeitgeist once again.If you can marvel at the speed of the firm’s change of fortune, marvel too at another turnaround. The yield gap between ten-year Treasury inflation-protected bonds () and conventional bonds of the same maturity is widely seen as a measure of long-term inflation expectations. These inflation “break-evens” have soared to 2.2% from a low of just 0.5% last March.