A rise in government bond yields – still only just returning to around pre pandemic lows – is not by itself a cause for concern. Rather, it’s the sharpness of the rise that’s the main worry. As long as yields don’t continue to spike, central banks are unlikely to be too alarmed about the knock-on implications for the economy and markets.
What you will learn:
- We still think underlying inflation pressures will remain contained, so a sustained rise in bond yields looks unlikely.
- Although we’ve nudged up our end-year yield forecasts, we don’t anticipate the associated tightening in financial conditions to pose a threat to the recovery.
- For us, a bigger concern would be if the Fed allowed US yields to rise more quickly due to the compensating effects of the large, front-loaded fiscal package.