Inflation expectations weigh on bond prices

UK government bonds were being sold off today, pushing yields up substantially and quashing any prospect of a further rate cut this year from the Bank of England. Yields move inversely to bond prices and represents the government’s cost of borrowing. Following the decline of Sterling after Brexit, higher import costs along with other factors such as energy and commodity prices are expected to push inflation above the 2% target next year. If inflation continues to rise strongly, the Bank of England will likely be forced to look at raising interest rates next year. Meanwhile, the case for the Federal Reserve raising US interest rates in December, or early next year, intensifies. Hilary Clinton appears increasingly likely to win the Presidency and markets view her as the best option for American economic prosperity.