Should it be feared deflation will rear its head?

Edito Inflation is weak and tending to slow in many jurisdictions. At the same time, inflation expectations are not picking up. Central bankers consider that the weak inflation remains a major issue. Needless to say that the environment remained unfavourable to linkers last month. In March, nominal bond yields slumped. This also weighed on linkers, their betas being less than 1. With central banks all voicing words of caution, this largely explains the trajectory of long yields. One can consider, however, that the central bank’s new stance has now largely been priced in: admittedly, linkers should remain cheap, but they are unlikely to weaken further (in terms of relative price). The 10-year Bund€i-BTP€I box continued to widen in March, reaching 35bp at its widest. It has been on an uptrend since the start of the year.