Yield curves almost everywhere have been flattening.  At the long end of yield curves, bonds have been rallying all year.  This is to be expected in Europe, where growth remains lacklustre, inflation is very weak, and the ECB is firmly in easing mode.  However, even in the UK and the US, where the market has been gingerly pricing in the beginning of (perceived) hiking cycles, long bonds have been rallying.

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Real yields are declining as both implied long-term inflation and nominal yields fall.  In the UK, as well as 1y1y and 5y5y real yields being negative, 10y10y is negative too (next chart), a very unusual event, while in the US they are declining but are still positive.

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The interpretation is the market sees nominal rates remaining low for a very long time, and that inflation will pick up.  This is an admission Western economies are still too frail and debt-laden to cope with the rate rises being priced in at the front of the curve, and that inflation will be needed to reduce the debt burden.  This is a stagflationary outcome. However, we know negative real rates encourage speculative behaviour .  Thus, such a structural decline in long-term real rates suggests Western economies, like the UK, will have to adapt to this sea change and the attendant risks to economic stability that come with it.