The global bond rally so far this year can be explained by a combination of soft growth, dovish central banks, short covering and increasing belief in “secular stagnation”.
- It’s likely that the rally has gone too far and that sooner or later the focus will shift to when the Fed will start to raise interest rates. This could cause a resumption of the gradual rising trend in bond yields and volatility in shares.
- Nevertheless, history tells us that it’s only when rates reach onerous levels that they become a lasting threat to share markets and ultimately to economic growth. And that seems a long while a way yet.
- Iraq is a worry but as with numerous other geopolitical threats it’s unlikely to be enough to derail global growth.