Global Economic Weekly: The return of the bond vigilantes

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Global Economic Weekly: The return of the bond vigilantes

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Global Economic Weekly

The return of the bond vigilantes

Global Letter: The return of the bond vigilantes 22 May 2026

Bond vigilantes are back this week. A combination of hot inflation data in the US, Economics

coupled with a lack of clarity around a deal with Iran, keep fueling inflation concerns, Global

while the data keep painting a resilient US economy. In this context, the market is

becoming more concerned about the Fed’s potential inability to deliver rate cuts. But Table of Contents

that can’t be all there is to it. An inflation-driven selloff should have led to a flatter curve

Global Letter 2

or higher breakevens. Instead, we have a steeper curve and a move driven by real rates.

US 4

In our view, unsustainable fiscal dynamics are compounding with a reflation story.

Euro area 8

UK 10US: Better than expected labor market

Given the recent upside surprises in the labor data, we are upgrading our labor market Asia 12

forecasts modestly. Our payroll averages for ’26 and ’27 are now 66k (prev. 45k) and 69k Emerging EMEA 14

(prev. 43k). Our new payroll trajectory accounts for the impact of the World Cup and Latin America 16

summer weakness in hiring. We expect the u-rate to stay around 4.3% in ’26 and 4.2% in Key forecasts 18

’27. However, our broader message is unchanged. This is a stable labor market that has Detailed forecasts 19

bottomed out, not one that is overheating. Research Analysts 25

Euro area: Milder gas outlook, milder economic hit

We now expect inflation at 2.9% in 2026 (-40bp) and 1.9% in 2027 (-20bp), and growth Claudio Irigoyen

Global Economist

at 0.7% and 1.2%, respectively (+20bp p.a.). Unchanged ECB call: hikes in Jun/Jul-26, BofAS

quarterly cuts from Jun-27 (25bp each).