King Canute and the China moon

While inflation is usually bad news for bond markets, the response from central banks may make things different this time round

With rising energy and food prices continuing to concern consumers and central bankers, the spectre of inflation is threatening the bond markets. There seems no respite from these inflationary forces. Ordinarily this would appear to be a very bad environment for government bonds, but there are some key reasons why the traditional response could be different this time. In this environment of higher prices, one would expect higher wages, but this has yet to happen. Given tighter credit, falling house prices and the threat of unemployment, one has to ask who is going to pay for these elevate...