Inflation and Supply Shortages Are Waking Up the Bond Bears

Central bankers continue to insist that the recent price pressures that are driving inflation higher will prove temporary. But based on what’s happening to bond yields and in the inflation swaps market, investors are growing less convinced. Something’s got to give.

Supply chain disruptions, soaring energy prices and a rebound in consumer demand thanks to progress with vaccinations have conspired to bestir prices. Annual inflation is running at 5.3% in the U.S. and 3.2% in the U.K., and is forecast to have reached 3.3% in the euro zone. In all three regions, prices are rising at a pace way faster than the 2% central banks are supposed to target.