rising chinese producer inflation and capital inflows add up to higher us bond yields
Our colleagues at CrossBorder argue that World government bond markets are risky because of Chinese reflation and the progressive recovery of the Eurozone economies. This threat is only partially explained by rising inflation pressures. The bigger risk comes from a prospective ‘re-normalisation’ of bond term premia; this is largely a capital flow story. Some US$3 trillion poured out of the Chinese and Eurozone economies into
‘safe’ (largely US) government bonds between 2012-15 – it now seems to be heading back. US 10-year governments could test 4% yields and the US dollar could fall 10% over the next 12 months.
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