Fundamentals backdrop and inflation remain bond friendly

For most of 2006, the potential for rising inflation expectations to derail fixed income returns, both in the short and longer term, has been a cause for concern. Core inflation numbers across the globe remain above the levels demanded by central bankers. While energy prices have dipped we remain cautious and, therefore, believe it is way too early to be thinking about rates decreasing. From an economic perspective, the exact path of monetary policy in the UK depends much on the outlook for European and US growth and interest rates. As for much of 2006, the UK has been a low beta versio...