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Chiara Cremonesi
Deputy Head of FI Strategy
FI Strategist
UniCredit Bank, London
Moore House - MRE6R
120 London Wall
UK-EC2Y 5ET London
United Kingdom
+44 207 826-1771

Chiara Cremonesi is Deputy Head of FI Strategy and FI strategist at UniCredit Group, based in London. She joined UniCredit in January 2007. She first worked as an FI strategist in the Global Economics & FI/FX Research team in Milan. She then moved to UniCredit London as an FI/FX strategist. Chiara has a master’s in economics from Università Bocconi in Milan.

Latest contribution

0a7d05999319c0588edeea05d9a32e1a602357cb33a6c57b074cbfa2496b752f;;[{"layout":"detailed","uid":26340,"publicationDate":"08 Oct 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_181342.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAYud3xTRckpPUQ8PBZYKrs=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Inversion of the EU swap inflation curve looks overdone ","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The recent increase in oil prices, among other factors (e.g. supply bottlenecks, very high shipping costs, the re-opening effect), has triggered an increase in breakeven rates, especially in the eurozone. 2Y EU swap inflation rates are trading at around 2.30%, back at 2011 levels, while 10Y EU swap inflation rates are at around 1.90%, back at 2013 levels. While the close correlation between oil prices and breakeven rates is not a surprise, our Chart of the Week shows that the 2\/10Y spread on the EU swap inflation curve is heavily inverted. In other words, the recent rise in oil prices has affected the short end of the curve more than the long end. <\/li><li> While this is in line with economic theory (unless second-round effects materialize, a rise in commodity prices will affect inflation in the short term but not in the long term), the current inversion of the swap inflation curve looks extreme. One has to go back to 2008 to find a similar inversion of the curve, but back then oil prices spiked to almost USD 150\/bbl (above EUR 90\/bbl at the time) and eurozone inflation peaked at 4.1% yoy. In our view, the current inversion of the curve reflects two factors: first, the very high level of actual inflation; second, that markets perceive the shocks driving this acceleration as transitory.. <\/li><li> In 2008, the 2\/10Y on the swap inflation curve remained inverted for around four months and started re-steepening just before the peak in eurozone inflation was reached. At present the curve has been inverted for almost three months and we see the peak in eurozone inflation in November. We therefore expect to observe a steepening of the curve in the coming weeks. Our view is that this will happen as a consequence of a decline in breakeven rates that is more pronounced at the short end of the curve. The ECB is forecasting inflation at 1.5% in 2023; we expect eurozone inflation to fall to the 1-1.5% range by the end of next year. In this context, 2Y swap inflation close to 2.30% looks overdone. If there is an increase in the inflation-risk premium, we expect it to be temporary and be corrected in the near term (as has happened in the US). Given our view that the current inflation spike is temporary in nature, we assign a low probability to a scenario of re-steepening of the curve due to a further increase in 10Y breakeven rates. <\/li><li> The main risk to our call would come from a further sharp increase in oil and other commodity prices from current levels. This would likely lead to further inversion of the swap inflation curve. <\/li><\/ul>","synopsisDe":"","synopsisIt":"","hash":"0a7d05999319c0588edeea05d9a32e1a602357cb33a6c57b074cbfa2496b752f","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"400","synopsisexpand":"1","shownav":"0","limit":"1"}}]