Meanwhile Mr Absolon points out the European Central Bank has also signalled its intention to step back from markets by trimming its purchase programme, while the Bank of Japan has favoured controlling the short end of the yield curve through its asset purchases.
“Arguably, the most difficult task falls to the Bank of England. Having shifted to a neutral stance in November, UK policymakers need to find equilibrium between protecting the longer term growth outlook against taming the undesirable effects of inflation, particularly as import prices are likely to rise,” he adds.
“Divergences in monetary policy cycles across developed economies are more nuanced, given that the US treasury market tends to exert a gravitational pull on the eurozone, Japan and the UK. For the broader fixed income universe, greater policy divergences may be found between developed and EM economies, where disinflationary trends are providing scope for central banks to cut rates.”
In addition, Mr Absolon highlights the importance of the US dollar, as any strengthening in response to higher US interest rates and inflation is likely to be a headwind. “In an environment where yields are expected to rise gradually, it is prudent to keep duration short in developed sovereign markets.”
Nyree Stewart is features editor at Investment Adviser
