Global View November 2015: A Maverick View of Bond Markets in 2016

by Michael J. Howell27. November 2015 16:01

The World is coming down against bonds. Unfairly. It is not that bad. Bond markets are driven by three things – short-term rate expectations, medium-term inflation risks and movements in the real term premium. Most investors are currently worried by the first factor (rising short-term rates) and some are becoming exercised by the second (rising inflation risks). Consequently, many pundits are calling for the end of the long bond bull market. But this call may be premature because it ignores the third factor (real term premia) which lately has been the most important for bond performance. Liquidity, in turn, is overwhelmingly the major influence driving these bond risk premia and determining curve reshaping.


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