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do arbitrage spreads change with inflation expectations?


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say a deal closes in 1 year and inflation is increasing, should the spread widen or it is too short term to matter much?

After all even if inflation was 5%, what would an investor buy if 1 year bond rates are repressed and stocks are having a headwind from the higher inflation?

Edited by scorpioncapital
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  • 2 weeks later...

Since no one has answered you, the answer is that the arb spread is directly impacted by interest rates, and the interest rates change with inflation expectations. So inflation expectations impact the spreads via rates.

Edited by blainehodder
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  • 4 weeks later...

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