UBS Fixed Income-Global Inflation Strategy _The Global Inflation Friday_ Gale-118993286

ab21 November 2025Global ResearchGlobal Inflation StrategyThe Global Inflation FridayNegative sentiment, negative carry… and avoiding ReevflationTariff-driven inflation is not finished, but the narrative that it is may be slow to disprove. Breakevens are sentiment-driven in the meantime, and carry is turning negative, we take off breakeven flatteners, and retain a negative bias on longer CPI.We expect unchanged inflation in November. Despite weak signs of more disinflationary undertone in this week’s detailed release, we think disinflationary risks are priced in and continue to recommend long 5y HICPx. Italian linkers underperformed on supply - a correction not to be faded now, in our view.UK RPI resumed its decline after the in-line inflation figures. We expect Budget measures to help inflation continue to decline. 5y supply in two weeks. Stay short RPI 5y5y.Figure 1: View summaryviewexpressions / commentsUSBreakevenNeutralShort bias across the curveReal rateLongEuro AreaBreakevenLong- Long 5yReal rateNeutralCountriesUKBreakevenShort- Short 5y5y RPI is a strategic positionReal rateLong- Long long endSource: UBSRisk sentiment and carry leave us negative on CPITariff-driven inflation is not finishedLast week we made the case that front end valuations could be still be supported. We still believe tariff passthrough might be stronger than expected now. It is not clear that passthrough has been substantially slower than expected. It is also not the case that US distribution enjoys deep profit margins to absorb tariff costs indefinitely. We also doubt this is an environment for price war over market turf. Perhaps when it becomes clear that tariffs won’t be removed next year we’ll see costs dripped back into consumer prices.But the narrative that it is may be slow to disproveBut if this is right, we don’t expect to be proved right in coming months. Cancelled/delayed CPI releases are one reason. (BLS updated calendar) But UBS projections for inflation are actually quite benign - and lower than fixings - until March next year - Figure 14US CPI-u.Breakevens are sentiment-driven in the meantimeIn the meantime, sentiment is likely to dominate. That means stocks and credit. As we write, breakevens appear to be lagging weak risk sentiment - our tactical recommendation is to be short - Figure 2Our tactical model for US 5y5y CPI zero coupon swaps says sel..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 12. 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 21 November 2025ab 2And carry is turning negativeWe are also entering the final week of positive carry. Markets are nearly eff