BILS - Rates Spark: Good Inflation / Bad Inflation

• One of the main questions that will determine the near-term direction in financial markets, and in rates in particular, is whether the current spike in inflation heralds a period of faster activity and price growth, or whether it will bring the demise of the current recovery.
• The most downbeat interpretation of the recent spike in prices is to be found in USD markets. We see the curve flattening in most cases.
• In Europe, the mood is more upbeat, but higher rates are spilling into wider sovereign spreads. The stress is contained so far, but warrants monitoring.

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