"On the subject of recent decline in bond yields, one would assume that it is the change in growth and, in turn, inflation expectations that's behind this but I was wondering whether you could comment on at what stage, declining growth assumptions starts to become a headwind for bond prices (given its impact on tax receipts etc..). I have also noticed that v few commentators can bring themselves to talk about flights to safety or quality when explaining recent price action in the bond markets, not surprising I guess!"

David Fuller's view Thanks for these interesting points.

The supply/demand imbalance behind any significant market move can be subject to many influences, some of which may seem obscure, surprising or illogical. This is why price charts are so helpful. Price is the distillation of every influence acted upon by people who are buying and selling in the marketplace.

My guess is that slower GDP growth is a factor, as is central bank buying, but CPI inflation should actually be a headwind because it has been edging higher in the UK, USA and much of Euroland. Regarding falling tax receipts, this is more likely to push up yields among heavily indebted countries in a currency union such as the euro, which they cannot control. In contrast, the UK and USA can and have let their currencies devalue.

In the global beauty contest, as I have often described the market environment, momentum is an understandably compelling force for investors. Momentum colours fundamental interpretations and also becomes self-feeding for a while.