Tuesday, 19 June 2012

Inflation and Bond Yields

If the UK's 2.8% inflation figure is in line with Bond market expectations then we've still either got some deflation to come, or exchange rate rises on the way, if you follow Frances Wooley's reasoning behind the extraordinary chart below

Convergence during the Euro years (def: Euro, defunct currency, floreat 1998 - 2008) Wooley says wasn't solely down to exchange rate differences per se but risk expectations of inflation, and one can see Brown's insane spending spree pushing the UK's yields way above the Eurozone

The Chart only goes to October 2011; today's 10 year bond yields, with Greece on 26% and Portugal on 11%, are almost a mirror of the spread in 1992/93. In contrast, Germany and the UK's yields have been falling whilst all the others are rising, with about 1.7% for the UK today. 

One thing is very clear; the Eurozone will never achieve the 1998 degree of convergence ever again. .

1 comment:

G. Tingey said...