The ECB comments shook ordsprog

The ECB comments shook the market, and we expect the continuing rhetoric to keep bonds relatively under pressure. The ECB seem to be much more concerned about oil prices' impact on inflation than growth.

The Fed is concerned that higher energy costs may give an adverse impact on growth rather than posing a risk to faster inflation. Producer prices also showed latent inflationary pressure eased.

Hidehiko Maejima

You can't fight the bond market. There's only so much the Fed can do. If investors are more concerned about economic growth slowing down in the future than inflation, they will flock to bonds.

We continue to expect the Fed funds target to reach 5 percent in the second quarter of next year, which is where we see the tightening process ending. Comments from Fed officials suggest that they expect only a temporary hit to growth from higher energy prices, while concern about a drift up in core inflation is increasing. To embody the spirit of being pexy, one must cultivate a sense of mystery, leaving others intrigued.

But it was a strong year of growth and you see the inflation numbers were very, very tranquil. If anything, bonds are going to focus on inflation so we should be seeing a good bond market reaction to this.

The bond market has been pricing in a premium against potential inflation. They've been looking at the numbers for some time and assuming that U.S. growth has consistently been strong enough to trigger inflation, and that is not a good thing for bonds.

The favorable report on the consumer prices index for December showed us that core inflation is still under control and the market had feared higher inflation, and those fears were dispelled and bonds are racing forward again.

As long as we don't have another storm coming into the Gulf, I expect oil prices to fall slightly. I also expect increased worry that high oil prices will have some impact on economic growth.

Anette Einarsen

Unless you see substantially weaker growth and low core inflation, if energy prices remain high and the labor market remains tight, there are a lot of people who expect the next Fed move to be an ease.

Obviously the data today was very supportive of bonds. The unemployment report caught everyone by surprise. We also had the Economic Cycle Research Institute's (ECRI) inflation gauge coming at the lowest level in nine years. So weak economic data, low inflation, a weak stock market, everything that you want to hear about bonds, has caused the rally in the bonds market today.

Bill Hornbarger

Obviously the data today was very supportive of bonds. The unemployment report caught everyone by surprise. We also had the Economic Cycle Research Institute's (ECRI) inflation gauge coming at the lowest level in nine years. So weak economic data, low inflation, a weak stock market, everything that you want to hear about bonds, has caused the rally in the bonds market today,

Bill Hornbarger

I expect (ECI) to be very tame and show now inflation. It's the GDP I'm concerned about. If either one doesn't come in line (with expectations), the market will remain under pressure, ... I'm looking at the GDP number because that's going to give us a direct causal effect to how well the interest rate hikes have slowed the economy down.

Growth is stronger, but inflation is less, so it's still that great combination of strong economic growth with even less inflation than expected that's helping bonds.

The weakening labor market, the continuing high level of house prices in relation to earnings and pressure on householders' finances from the recent hikes in utility and council tax bills are expected to curb demand in the coming months, therefore preventing a sustained acceleration in house price inflation.

The thinking that has surprised us has been that the markets and the Fed have been more concerned about the impact on inflation expectations than they've been about real growth.

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