• A very sharp rebound in global GDP growth is expected in Q2 as restrictions eased in the major advanced economies. June’s consensus forecasts for global growth in 2021 rose to 5.8%, 0.5% above March’s forecast. Recent improvements in forecasts see output in many economies reaching prepandemic levels by the end of the year, much faster than previously predicted.
• Despite upside inflation surprises in May, US yields fell. After the Fed forecast rate rises earlier than previously, long-term US yields fell further, and the curve flattened. Over the quarter, US 10-year treasury yields fell 0.3% p.a. to 1.5% p.a. and UK yields fell 0.1% p.a. to 0.7% p.a. The gathering pace of vaccine roll out in the eurozone helped equivalent German yields rise 0.1% p.a.
• Supply and demand imbalances and a weak base of comparison in 2020 suggest UK headline CPI will increase above May’s 2.1% year-on-year rise. May’s 5.0% year-on-year increase in US headline CPI exceeded expectations. US core CPI also outstripped expectations, rising 3.8%.
• UK 10-year Implied inflation, as measured by the difference between conventional and inflation-linked bonds of the same maturity, fell from 3.7% p.a. to 3.5% p.a. as nominal yields fell relative to real yields.

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