Recent moves in global bond markets indicate that post-pandemic world is in danger of stagflation, but good economic data and record high stock market on the contrary imply rising economic optimism.

Signals of stagflation - high inflation coupled with slow economic growth - are disconcerting and not trusted by some investors. According to investors, this situation is associated with strong influence of central banks on debt markets.

Bond yields, both nominal and real, which exclude expected inflation, have dropped in the US and Eurozone recently. This could mean that bond market investors anticipate declining growth rates or even slowdown, which will require global Central banks to extend period of holding interest rates low.

However, while the real yield on 10-year inflation-indexed US Treasuries (TIPS) has declinedsince late March from -0.6% to a record low of -1.20%...

… the indicator of future inflation, known as break-even rate, has not moved far from this year's highs which means that pure contribution for nominal bond returns came from increased inflation expectations.

Ten-year break-even rate in the United States - the rate of inflation at which the yield on nominal bonds and TIPS would be equal - is now 2.35%.

Given that inflation data are above forecasts, there is a risk that higher price increases may not be as short-lived as central banks expect. US consumers expect 2.8% inflation in five years, according to the recent monthly study from the University of Michigan.

The International Monetary Fund also continues to expect strong economic growth.