Some wider implications of bond volatility

Bond market volatility is something we will become accustomed to and the gaps in market illiquidity will likely be eventually filled.

The more immediate implications are however that it will:

1) make those central banks that are itching to normalize policy cognizant of the risks of sparking a 1994 style bond selloff and

2) the prospect that the volatility helps to shift the investment pendulum from bonds toward equities.

It is too early for a wider asset allocation shift from bonds into equities to occur largely because a bond selloff does not equate to a bear market for bonds.

But for the Fed and BoE there will be a desire to communicate their intentions well in advance of any liftoff, which makes a surprise rate hike very unlikely.

By Divyang Shah, IFR Senior Strategist

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