Authored by Ven Ram, Bloomberg cross-asset strategist,

The European Central Bank may have reached a point of hesitancy in its fight against inflation, but real rates suggest that it won’t be able to put a full stop to its tightening just yet.

At the heart of the ECB’s efforts will be how much of a restraint its policy rate poses on the economy, with inflation-adjusted rates set by the markets providing the most direct read-out.

For instance, inflation-adjusted rates in Germany are only mildly positive as you go further out the curve, in sharp contrast to the US, where the rates are significantly positive.

Germany’s two-year bonds are now trading at a premium to where they are indicated on my model, which reflects skepticism that the ECB will go the distance to quell inflation.