Over the last six months the talk of FED Tapering has created huge volatility in global financial markets; equities, bonds and currencies. The first part of the Tapering talk was clearly an attempt by the US FED to take the bond markets out of euphoric states where it clearly saw that US 10 year bond yield of 1.25-1.5% were not sustainable and excessive risk was being taken by market participants betting on ultra low long term yields over the long run. The yield curve has not adjusted with US long term bonds near levels that are more correlated with longer term growth and inflation outlook. It is also clear that the long term bull market in bonds is now more or less over with bond yields looking to move up over the longer time frame. However given low inflationary pressures and high unemployment in most developed economies, the probability of very high yields in such a situation is low.

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