A time for shorts and a time for longs

Research evidence excerpt

A time for shorts and a time for longs

FICC Research

Interest Rates

29 June 2026

United States: Inflation Markets

A time for shorts and a time for

longs

We recommend a tactical long in US inflation, expressed via Jonathan Hill, CFA

5y5y CPI swaps. +1 212 526 3497

jonathan.hill@barclays.com

BCI, US

The record-breaking hot weather in the US and western Europe makes a strong argument for

Apostolos Apostolou

shorts in a sartorial sense. But for the inflation market, layering into additional shorts is a less +1 212 526 5051

obvious choice, in our view. We recommend tactical longs in 5y5y inflation swaps given a apostolos.apostolou@barclays.com

variety of factors including that the one-two punch of the tentative end to the war in Iran and BCI, US

hawkish June FOMC are behind us, the bullish July seasonal, optically attractive valuations, and

signals from our fair value models.

To be sure, we strongly sympathized with the recent sell-off, having been recommending shorts

in 1y1y breakevens since mid-May (Upside and downside risks, May 14, 2026), expressed using

the TIIApr27/TIIApr28 pair. At the time, the logic was that with no real evidence of wage

acceleration, and in the line of thinking that "it's hard to get a wage price spiral without wage

growth", the richness in 1y1y breakevens (especially on an ex-energy basis) looked over-

extended and likely exacerbated by flows looking to capitalize on the strong TIPS carry period in

May/June/July. As 1y1y breakevens dipped below 2.40% last week, we hit target on the trade,

and see the risk/reward for the next several weeks as justifying flipping to a long bias. In

essence, there was a time for shorts, but it is now a time for longs.

Main upside risks for breakevens/inflation swaps

• The one-two punch has already hit.