Higher inflation expectations are of course exactly what central banks around the world have been trying to bring about for some years now, and this seems to be appearing in the US – thanks Donald Trump! But one does wonder whether amongst the central bankers’ high-fives there may be some worried looks.
Financial markets and investors have become very used to ever decreasing interest rates over the past 8 years. In fact, many young traders have never experienced anything else but a bull market.
Bond markets have already taken a lot of pain as rates spiked higher in November – 10-year bond yields have risen 45 basis points in November alone. However, that yield is still 140 basis points off its 2014 high, and nearly 200 basis points from its 2011 high.
While there is still a lot of uncertainty around the future direction of US policy once Trump takes over the Presidency, for now things are all pointing in one direction with further RBA rate cuts possibly a distant memory.