Over the last few months, the financial market conversation has been around the reflation trade. This was nourished by a pick up in economic activity and a rise in inflation expectations, which, in turn, have
been driving long term US interest rates higher. In addition, massive deficits in the United States are expected to substantially increase the supply of government bonds, thereby also pushing up benchmark
debt yields.
The US Central bank, the Federal Reserve (Fed.), declares being confortable with this situation. Their officials are staying silent on any change in their monetary policy to keep in check this recent rise in
long-term rates. As a result, the Bond markets are becoming increasingly uneasy with this new state of affairs, reassured only by one thing: the Fed.'s continuing asset purchase program, better known as QE (Quantitative Easing).
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