Inflation will burst the bond bubble

Inflation is back, especially in the US, where the US Price Producer Index has broken its downtrend of nearly a decade. In the next few months, this will explode volatility and the bond-market bubble, when investors start unwinding their bonds – along with the US Federal Reserve doing the same. Stocks and bonds are now positively correlated, whereas normally they are inversely correlated. The VIX volatility index has significantly jumped recently, climbing from 9 to a one-month high of almost 11.

Today the US Consumer Price Index will be released and should come in around 2%. Ironically, the better (higher) the rate, the more pressure will be on the markets that are on steroids from the Fed with its era of free money. It is definitely time to get cautious.

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This report has been prepared by AC Markets and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by AC Markets personnel at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.