Bond market threat from inflation

World bond markets have made heavy weather of 2001, but is there worse to come? Recent experience has taught us that we are in a low inflation world, with many secular forces putting downward pressure on prices and margins. Pricing power, particularly for material goods, remains strictly limited. New technologies have in-creased productivity and cost transparency. Monetary authorities are expected to target (and achieve) inflation rates in low single figures. In response, nominal bond yields have fluctuated, but have done so around a steadily decreasing secular trend. The risk to bond...