Bonds likely to keep sliding as inflationary threat returns

Not many, but some analysts around the world, including us at FxWirePro have been warning against the bond prices. When European countries were selling very long-term bonds at record low yields, we thought that the investors were underpricing the threat of inflation. But now it is quite real. According to the survey by Bank of America Merrill Lynch (BofAML), inflation and decline in bond prices got included in the tail risks being considered by global fund managers.

The prices of commodities are still not skyrocketing but they are definitely off their lows. Some of the commodities like Copper have broken a long term down trend and rocketing above. Milk prices have risen sharply in recent days. The prices of commodities have historically been a major influencing factor in inflation. If inflation does return, central banks around the world not only struggle to wind up their record stimulus, they would be sitting on a large mark to market losses on their bond holdings.

Bloomberg commodity indices, which dropped to multi-decade low in January this year, it is up more than 13 percent off their lows. The price levels are still not alarming but the trend if continues would be sufficient enough to trigger a further slide in bond prices.