Bond Rally Built on Inflation Euphoria Faces UK Reality Check

A global bond rally ignited by signs that inflation in the world’s largest economy is finally slowing once again faces a reality check this week.

Government debt from around the world is enjoying its best month of the year after a gauge of price pressures in the US last week ebbed for the first time in six months. At home, that’s encouraged bets that interest-rate reductions by the Federal Reserve are just around the corner — and elsewhere, it’s reassured investors that their central banks also have room to cut.

Bond markets were quiet as the week kicked off, with US Treasuries and European bonds little changed early on Monday. But moves may pick up later in the day, when a series of Fed officials including Raphael Bostic and Christopher Waller are due to speak.


In Europe, attention is turning to an inflation report in the UK. While prices there have moderated significantly since late 2022 — when the inflation rate hit a heady 11.1% — investors warn the downward path for prices isn’t plain sailing. For markets, it’s the latest checkpoint in a bumpy journey to find out if the global fight against historic levels of inflation is finally nearing an end.

“Next week’s UK CPI print will be important, and we see a risk that this declines by less than many have hoped for,” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management, commenting on Friday. “This could place enthusiasm for rate cuts onto more of a back burner.”