The election of pro-fiscal stimulus Donald Trump may be the final piece in the puzzle that reverses the 35-year bull market super cycle in bonds, says AMP Capital.
The election of Donald Trump adds to "increasing signs" of a policy rotation away from monetary policy and towards fiscal stimulus, says AMP Capital chief executive Shane Oliver.
In addition, fears about deflation are receding and global inflation looks to have bottomed out, said Mr Oliver – with commodity prices (notably oil) stabilising.
Global growth has also proven to be stronger than economists feared earlier in 2016, he added.
Government bond prices have also moved sharply higher from their record lows following the Brexit vote four months ago, Mr Oliver said.
Ten-year bond yields have risen from 1.36 per cent in the US to 2.2 per cent, from -0.19 per cent to 0.31 per cent in Germany, and from 1.81 per cent in Australia to 2.64 per cent.
"While there have been lots of premature calls that the bond super bull market that started in the 1980s is over, there is good reason to believe that now it is," Mr Oliver said.
"Bond yields have fallen way below levels that can be fundamentally justified, the threat of deflation is receding, the global economy looks okay and the focus seems to be shifting from monetary stimulus towards greater reliance on fiscal stimulus – led by the US," he said.
But the rise in bond yields, when it comes, is likely to be more gradual than the bond crashes of the 1970s and 1994, Mr Oliver said.
"Historically, bond yields have remained low after a long term downswing for around several years, as it takes a while for growth and inflation expectations to really turn back up," he said.