Globally, government bond yields have remained incredibly low, despite the cyclical pick-up we have seen in economic growth in recent times. Nowhere is this more evident than the Eurozone, which continues to post strong economic data. We believe bond markets need to catch up with the fundamental reality.
Historically, inflation has tended to be correlated to the strength of the labour market. As unemployment decreases, the pool of available labour shrinks, enabling workers to demand higher wages. This feeds through to the overall price level, putting upward pressure on inflation. Today, however, we are seeing a puzzling global macroeconomic backdrop.