Bonds, deflation and Gibson's paradox

With developed world inflation hovering around the 1%-2% mark, Smith & Williamson's Chris Lynas explores the potential impact on bond markets.

After a fairly rubbish 2013 for bonds, 2014 has begun on a more positive note. The much-anticipated tapering began in December. However, the siren voices that predicted a sharp sell-off in bonds were proved incorrect as both 10-year and 30-year bond yields fell sharply in the first quarter. QE: Inherently inflationary? It is often said that quantitative easing (QE) is there primarily to manipulate bond yields lower but the empirical evidence is that at the end of each QE programme bond yields have retreated. This can be explained by regarding QE as inherently inflationary, so th...