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Monday, September 17, 2012 2:59 PM

Infinite QE; Central Bank Balance Sheets as Percent of Nominal GDP; Euro Demand Deposits; Break-Even Inflation Trends

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Here are a few very interesting charts from Steen Jakobsen, chief economist at Saxo Bank in Denmark.

click on any chart for sharper image

Central Bank Balance Sheets

Demand Deposits

Capital flight from Spain, at least in terms of demand deposits, has stabilized even if other types of deposits or transfers have not.

Infinite QE

Steen writes ...

The following chart shows my main theme since "QE Infinite": Inflation expectations continue to rise. Note the 10-Year break-evens rates from Germany and the US. However some of this is of course the result of Draghi's put.

Breakeven Rates

Here is an explanation of Break-Even Inflation.

If you currently own bonds, you’ve already made a bet on inflation, whether you know it or not. Traditional fixed-income investments may not provide the real return investors need during periods of high inflation. It’s important to know whether your traditional fixed-income investment breaks-even with inflation.

Break-even inflation is the difference between the nominal yield on a fixed-rate investment and the real yield (fixed spread) on an inflation-linked investment of similar maturity and credit quality. If inflation averages more than the break-even, the inflation-linked investment will outperform the fixed-rate. Conversely, if inflation averages below the break-even, the fixed-rate will outperform the inflation-linked.

Calculation Formula: Comparable Fixed-Rate – Inflation-Linked Real Yield = Break-Even Inflation
Mike "Mish" Shedlock
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