Revolt of the bond traders

GLOBAL BOND markets are wakening from a long slumber. The Federal Reserve this week said it will wind down its vast bond-buying programme. At the same time, bond investors are reacting to higher inflation: across a group of 35 economies, five-year bond yields have risen by an average of 0.65 percentage points in the past three months. A shakeout is taking place not only in but also in rich countries such as Australia and Britain. Sudden moves inevitably spark fears of market turmoil, along the lines of the “taper tantrum” in 2013. However, the bond shift taking place today is actually very different.Before the pandemic interest rates across the world were low, reflecting dormant inflation. When the coronavirus struck almost two years ago, most central banks promised to keep their policy rates lower for longer to help the recovery. Many also agreed to buy bonds, reducing their yields.