UBS Fixed Income-Global Inflation Strategy _The Global Inflation Monday_ Gale-118899621

ab17 November 2025Global ResearchGlobal Inflation StrategyThe Global Inflation Monday2s10s breakeven flattener in TIPS. Stay short UK into RPI and Budget.Short-end breakevens have collapsed in the US. Tariff reassessment explains some of the move, but it really looks more like recession fear. Oil does not reflect such a skew of risks, however, and tariff passthrough may just be delayed - profit margins in distribution industries are not so plump that absorbing tariffs permanently is trivial. Risks for UK RPI this week may be tilted to the low side. Falling inflation should bring down valuations over the short term and the long. We suggest fading last week's bounce in RPI on Budget news and strong supply.Euro HICPx valuations are low. We expect gradual improvement and the ECB bulletin didn't contain anything to suggest we reconsider. BTP€i outperformance looks complete.We also review ETF and SPIRE flows in TIPS and linkers.Figure 1: View summaryviewexpressions / commentsUSBreakevenNeutral- 2s10s flattenerReal rateLong2s5s steepenerEuro AreaBreakevenLong- Long 5yReal rateNeutralCountriesUKBreakevenShort- Short 5y5y RPI is a strategic positionReal rateLong- Long long endSource: UBSShort-end TIPS overshoot. Breakeven flatteners.Front end breakevens have collapsedFront end fixings have continued to fall, so much so that the market now says the peak in y/y CPI will come in December rather than next year, at just a shade above September's 3%. Tariff reassessment explains some of the moveThe 60bp collapse in six weeks in the 1y rate has some real drivers, in addition to the government shutdown: tariff de-escalation with China, reductions in agricultural tariffs (on ~3% of the CPI basket) announced last week. But this looks more like recession fearBut it is highly unusual to see such a move without much more substantial growth concerns - the kind of which are most often linked to financial stability concerns - or energy prices. There are financial stability concerns, of course. The private default count is high, but it does not seem to be the case that concerns are clearly materialising. Our credit strategists outline the default picture here. This report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 15. Interest RatesGlobalGiles GaleStrategistgiles.gale@ubs.com+44-20-7901 6066Reinout De BockStrategistreinout.de-bock@ubs.com+44-20-7567 0152Elena AmorusoStrategistelena.amoruso@ubs.com+44-20-7567 0239Mustafa Oguz CaylanStrategistmustafa.caylan@ubs.com+44-20-7901 5203Global Inflation Strategy 17 November 2025ab 2Sentiment on oil is poor, but TIPS shouldn't price risks that the main market does notSentiment on oil has been negative. A fall to the EIA short-term projections' average Brent price of $55 for 2026 would approximately justify 40-50bp downside in 1y inflation. But it is quite possible that continued demand for strat