Is it a case of central banks trying to persuade us (and themselves) that inflation is stronger ?

Brent slumped in October (from $85/ bbl to $75.5/ bbl ), correcting the uptrend observed from August to September. On the whole, nominal interest rates declined in October. The yield for the 10-year Bund eased by around 20bp (from 0.57% at the start of the month to 0.38% on 31 October). Similarly, the yield for the 10-year Gilt eased by 25bp over October, the yield for the 10-year OAT by 15bp and the yield for the 10-year TNote by 9bp. As for the yield for the 10-year BTP, it reached a high of 3.68% mid-October, but went on to pull back to 3.4% at the start of November. The VIX soared in October, from 12% at the start of the month to a high at 25.2% after the selloff experienced by equity markets, and currently towers around 20%. The Eurozone flash estimate pointed to a clear acceleration of inflation, as widely expected, with core inflation rising to 1.1% in October (from 0.9% in September), headline inflation to 2.2% (from 2.1% in September). In Germany, the CPI accelerated to 2.5% in October according to the preliminary estimate (up from 2.3% in September). In France, the preliminary estimate indicated that inflation was stable in October, with the CPI reaching 2.2%. Save for the latest CPI preliminary estimates, the determinants of breakeven inflation rates were globally unfavourable to index-linked bonds, which explains why the breakeven for the 10-year TIPS has lost around 8bp since the start of October, strongly affected by the equity selloff. Breakeven for the 10-year index-linked Gilt has shed around 10bp, likewise for the 10-year OAT€i . As for the breakeven for the 10-year Bund€i , it contracted by 3bp. Central banks appear intent on selling the idea core inflation is undergoing a normalisation (see Focus). In terms of IOTAs, long-dated maturities OAT€i (10 years and over) remain cheap . As for French inflation, the OATi 2028 seems to be the cheapest right now in IOTA . The spread between 10-year swap rates on Eurozone inflation and French inflation has widened to 2bp, these now reaching 1.56% and 1.54%, respectively. The box between the 10-year Bund€i and 10- year BTP€i held on high in October, peaking at 36bp at the end of the month, which was consistent with the particularly negative news flow concerning Italy. This box pulled back to 30.8bp at the start of November.