As Geopolitics Fades, Bond Markets Are Refocusing on Inflation and the Fed

Schroders argues that the bond market’s attention is shifting away from the Middle East and back toward the more durable drivers of yields: labour markets, inflation and central-bank policy.

• The firm believes stronger U.S. economic data has reduced the likelihood of Federal Reserve rate cuts and increased the probability that policymakers remain on hold or even consider further tightening over the next year.
• While tariff-related inflation pressures are expected to fade, Schroders warns that rising memory-chip prices, broader technology inflation and supply-chain costs may keep core inflation stubbornly elevated despite easing energy concerns.
• The report favours UK gilts over German bunds, arguing that easing energy risks and a softer labour market make additional Bank of England tightening unlikely, while the ECB continues to signal a more hawkish stance.

Read the full update for Schroders’ latest views on bond yields, inflation risks, central-bank policy and global fixed-income positioning.