A global bond rally this week suggests that the anxiety over inflation that had gripped markets this year has started to ease, with investors ignoring figures on Thursday showing that the rise in US prices has accelerated further. .

U.S. government bond prices briefly fell following the release of figures showing that consumer price inflation hit an annual rate of 5% in May, the highest since 2008. 10-year US Treasury benchmark yield at its lowest since early March at 1.48%.

The recent price hikes, which have also swept over other government bonds around the world, were mainly due to a drop in long-term inflation expectations in the United States over the past month. This suggests that investors are buying into the Federal Reserve’s view that the current rise in price gains will not last.

“With the glasses of the bond market, there is no inflation, it seems,” said Padhraic Garvey, head of research for the Americas at ING.

Reflecting this, US 10-year breakevens, a closely watched measure of the level of inflation taken into account over the next decade, fell to 2.32% from the eight-year high of 2.55% reached. last month.

“My broader feeling is that we are past the peak of the rising inflation narrative and now have more bets on transient inflation over the next few months,” said Guy LeBas, chief securities strategist. fixed income at Janney Capital Management.

Investors say there has been little recent economic data or Fed policy statements that would explain this reassessment of the long-term inflation outlook, although a lukewarm report on the US labor market last week dampened some of the exuberance over the speed of the pandemic’s resumption in the world’s largest economy.

Instead, they point to a build-up of bearish bets against US Treasuries and other government bonds in the rush of lockdowns in the first three months of this year. This forced many investors to buy bonds when the markets turned against them.

“A lot of it is about positioning,” said Mike Riddell, fund manager at Allianz Global Investors. “As Treasuries start to rally, people are moving out of their short positions, which drives the rally further.”

Some analysts have looked across the Atlantic for a catalyst. European government bonds have seen solid gains in recent weeks after European Central Bank officials publicly denied speculation that they would soon scale back their stimulus efforts. The ECB confirmed at its policy meeting on Thursday that it would maintain the current pace of its bond purchases.

German 10-year yields fell to minus 0.26% on Thursday, their lowest in more than six weeks. “We have a large central bank that is going to provide more liquidity than the markets expected a month ago,” said Peter Chatwell, head of multi-asset strategy at Mizuho. “It acts as an anchor for other markets, including treasury bills.”

Despite falling inflation expectations and bond yields, some investors are reluctant to end the fear of market inflation.

Many have become more willing to ignore higher-than-expected inflation surprises like Thursday’s, as much of the rise is due to ‘base effects’ of a recovery from last year’s crisis , according to Sonal Desai, director of investments for fixed income. to Franklin Templeton. But she argues that their resolve, and that of the Fed, could be put to the test if the inflationary spike continues over the next few months.

“I think it might go on for a bit longer than expected,” Desai said. “I think there could be more than base effects. The question remains: how does the market think the Fed will react? The Fed meeting next week will be very interesting.