- Bond market yields imply rising inflation expectations
- Wealth managers don't expect that inflation will trigger a policy response this year
Over the past year, enormous stimulus packages have been launched to prop up economies and interest rates have been cut to record lows – in some cases negative levels. The US stimulus has been the most dramatic, with the broad money supply annual increase last year going from roughly 5 per cent to 25 per cent. This could lead to a rise in inflation as activity picks up.
Bond investors appear to be starting to anticipate inflation, with a sell off in global bond markets in recent weeks. Inflation is bad news for bonds, because it erodes the real value of the interest they pay, and it makes a rise in central bank rates more likely. The bond sell off has been, again, most pronounced in the US, with the election of Joe Biden and increasing likelihood of his $1.9 trillion (£1.36 trillion) pandemic aid package being passed.