Bonds: Inflation

Buy when the coloured lines trend higher, sell when they trend lower

This tool looks at the major determinant of bond prices in the long-term. It is designed not only to show the current position but also to provide a Best Guess as to the future trend. For comparability, bond price indexes have been rebased to set year-end 1994 at 100.

In each chart the bond price index is shown as the thick white line on the right hand axis. The main explanatory variable, the rate of inflation uses the left hand axis, shown as the thin yellow line.  A Best Guess as to the future trend of inflation is also shown on the left hand axis as the thin orange line.

The Best Guess shows the forecast rate of inflation for the current and following years. The base level is the average for the last completed calendar year. Forecasts are consensus estimates.

The left hand axis is inverted for clarity in showing the close relationship between inflation and long-term bond prices. Thus, a decline in the rate of inflation appears as a rising line that generally moving in the same direction as bond prices. Given that the bond market tends to discount inflation data when released, the main focus of attention is on the forecast period ahead.

Owing to the conversion of legacy currencies into Euros, analysis is provided on a common bond market denominated in Euros, rather than for individual countries. Historical data is provided by creating synthetic GDP-weighted time-series for the component currencies, expressed in the European Currency Unit.

[ Site Map ] [ Home ]
[ Chart Library ] [ Bond Charts ]