New Dynamics Demand Fresh Thinking

Key Insights

• Changing dynamics mean that the past decade is probably a poor guide as to how bond markets might perform going forward.
• With central banks removing stimulus support and hiking interest rates, we expect tighter global liquidity, higher interest rates, and bouts of volatility to continue. 
• While the environment is challenging, we see potential for great buying opportunities, so a flexible approach to bond investing is vital.

Bond market volatility is set to continue as markets prepare for life without central bank support. After more than a decade of stimulus measures, central banks are withdrawing liquidity and hiking interest rates in response to multi‑decade high inflation. Given that aggressive actions of central banks drove yields down so low in the first place, their withdrawal is likely to be highly disruptive—and will ultimately have a much bigger impact on markets than economic growth forecasts.

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