Abstract
Subject Bond markets outlook. Significance Eurostat today reported that the euro-area economy grew by 0.6% quarter-on-quarter in October-December 2017, and by 2.6% in the whole of 2017, outpacing growth of 2.3% in the United States and 1.8% in the United Kingdom. The yield on benchmark 10-year US Treasury bonds has surpassed the level it reached after Donald Trump’s US presidential election victory when investors positioned themselves for higher growth and prices. The tax bill and modestly rising prices have reinvigorated the ‘trumpflation trade’ of investors shifting from bonds to equities. Signs that the ECB may start withdrawing monetary stimulus faster than expected, coupled with robust global GDP growth, are putting further upward pressure on global yields. Impacts The US treasury secretary’s Davos remarks that a weaker dollar helps US activity could fuel further euro strength, challenging ECB policy. This month’s IMF update upgraded its global growth forecasts but warned of risks, especially asset bubbles and financial vulnerabilities. Global equity fund inflows are surging, fuelling dangerous overvaluations in certain sectors including technology.
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