Global bond yields on a rising path – AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the rise in long-term bond yields in developed markets has extended somewhat further on Monday despite dovish comments from ECB members on Friday down-playing the talk of tapering, and dovish comments from BoJ governor Kuroda, saying he has the scope yet to cut both short and long term rates.

Key Quotes

“Despite these comments, the market appears to be adjusting to a new sense that these central banks are reluctant to further expand QE, and most central bankers are arguing in concert that they think the effectiveness of further policy easing is now much diminished, calling more forcefully on governments to accelerate reforms and where possible expand fiscal expenditure.

Budget deficits are no longer a dirty word and the debate has shifted to using the low global borrowing costs to fund infrastructure spending that might reap productivity benefits and in essence pay for themselves over the long term.  No doubt there are still cautionary voices that budget repair is far from complete, but the momentum in fiscal spending has already shifted to be positive and this trend appears likely to continue.

Thirdly, there is upward pressure on inflation coming from commodity prices, helping reverse the decline in global inflation expectations.  This was apparent in the 10-year government breakeven chart shown above.  While UK inflation expectations have shot up, they have also risen modestly in the Eurozone, the USA, and other countries along with the recent rise in oil prices.”