Market Expects Higher Inflation

Market participants seem to think that inflation will rise. The FT reports that, investors from both sides of Atlantic consider this to be a big worry. To overcome that, investors seem to take cover by buying government securities, particularly those that are inflation protected.

However, central banks of US, UK and Europe are unwilling to hike the interest rates. They feel that the risk of inflation is low. Hence, last week, these banks indicated that the rates will stay low for quite some time.

So, FT notes that the demand for US Treasury inflation adjusted bonds reduced the inventory to the lowest in 3 years. FT also notes that the Bank of England did caution on a “short term spike in inflation”. However, the English Central Bank felt that it would fade.