The Spectre Looming Over Bonds

Bond Markets Are Set To Flat-line, Not Rally

The outlook for World government bonds is becoming more problematic despite skidding inflation. We acknowledge that policy rates will be sticky, but the bigger risk is a jump higher in term premia (defined below) from current lows. Term premia are sensitive to any pick-up in coupon issuance; foreign appetite for bonds and Central Bank liquidity provision. All these three factors are likely to act together to push term premia higher…