2019’s rampant bond rally came to a halt this month as bond yields rose, causing bond prices to fall across most major bond markets.
In a theoretically efficient fixed income market, closely related bonds (or derivatives) with similar risk characteristics would always be priced the same. In reality, these prices persistently diverge from each other, which means fixed income markets are inefficient.
Inflationary pressures have been building globally and particularly in the US. The rise in breakeven inflation rates over the past two months shows that markets have begun to price this in.
In July 2007, then Citigroup CEO Chuck Prince infamously said “…as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”, and the rest is history.
Tamar Hamlyn shares his observations of global macroeconomic policy following a study tour across the US, EU, UK, China and Japan.