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Global bond markets are in turmoil following stronger-than-expected US jobs data, forcing a worldwide repricing of interest rate expectations. While the US economy’s strength might justify higher rates, countries like the UK face a more challenging scenario, combining mediocre growth with inflation concerns and currency weakness. The Bank of England is now expected to deliver fewer rate cuts in 2025 than previously anticipated, with markets predicting just two quarter-point cuts from the current 4.75%. The situation is particularly concerning for the UK as oil prices rise above $80 per barrel while sterling weakens, threatening to push inflation above 3% by April. This global reset in rate expectations could have far-reaching implications for asset prices, especially those valued based on assumptions of returning to the low-rate environment of 2012-2020. Japan’s potential monetary policy normalization adds another layer of risk, as Japanese capital might flow homeward, affecting global market liquidity.
