19th February 2018

Bond yields rise with inflation expectations

This week saw a small but significant rise in bond yields, continuing a trend which started in January and which is most likely due to increasing inflationary pressures and expectations of rates rising faster than previously thought. In the short-term equities have faltered too as investors reassess valuations of companies in the light of potentially higher discount rates. We would expect the direction of equity markets to change once there is a little more certainty about future rate hikes. Past Fed boards would have been quick to act to fix expectations, will the new chairman take a different attitude?

Only time will tell.


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