Via: FT.com

Fears that central banks around the world are planning a crackdown on rising inflation saw bond and futures markets move sharply on Tuesday, with a series of interest rate rises now priced into markets in the US, the eurozone and the UK.

The shift came after Ben Bernanke, the Federal Reserve chairman, warned of growing inflationary pressures, bolstering the view that all the world’s leading central bankers are on high alert.

Jean-Claude Trichet, the European Central Bank president, has warned of the possibility of a rate rise next month and explained on Monday that this was “entirely inspired by this necessity to anchor inflation expectations”.

The tough stance among central bankers was reinforced on Tuesday when the Bank of Canada shocked markets by leaving its interest rate unchanged, citing the risks of rising inflation.

The yield on the two-year Treasury note on Tuesday reached a high of 2.94 per cent, up from 2.40 per cent on Friday when a sharp rise in the US unemployment rate sparked a bout of buying bonds. The two-year note yield has staged its biggest rise in the past two days since 1985.

The US market reaction is falling into line with previous sharp moves in Europe, where two-year UK gilt yields have risen a full percentage point in the past month and the two-year German government bond yields are around 4.64 per cent, after trading at 4.33 per cent last week and 3.65 a month ago.

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