Inflation fears affecting bond markets

Fund manager's comment

After a period of sustained strength in bond markets, fears about inflation have led to some selling...

After a period of sustained strength in bond markets, fears about inflation have led to some selling. Many investors have been funding these bond holdings by short-term dollar borrowing. With rising US interest rates and some stabilisation in the dollar exchange rate, the so called free carry is disappearing. In addition, the threat of a downgrade to sub-investment grade on General Motors' debt has led to a widening in spreads. Inflation fears are being driven by strong commodity prices, which are being caused by strong demand from countries such as China, India and the former Soviet Union...