Global themes: Selectively bullish breakevens with medium term risks skewed to the upside

In the Euro area, front end HICP swaps are pricing in too much pessimism and we are bullish on 1Yx1Y HICP

Despite an expected recovery in activity, we see limited catalyst for significant repricing of inflation term premia over 2021.We expect 5Yx5Y HICP to trade in a 1.15-1.30% range over 1H21

We have a bias for narrower BTPei IOTA spreads given our intra-EMU tightening view and maintain a narrowing view on SPGBei IOTA

In the UK, we are neutral on front end RPI swaps which look fair value vs. our inflation forecast. Under an EU-UK FTA we expect 1Yx1Y RPI to fall to around 3.10-3.15% level

30Y RPI is around 30bp rich given 2030 RPI-CPIH alignment. We have a medium term bearish bias but are wary of positioning given potential increased demand over the near term

The potential for an increase in linker issuance in 2021 following months of very light supply can put modest widening pressure on 30Y IOTA which are close to historically rich levels