Consequently, search for yield and trust in a sort of “central banks’ put” was the prevalent narrative until last year. Markets are becoming increasingly aware that central banks will not ensure such a put and are thus starting to recalibrate policy, not least as a result of the strong recovery now ongoing.
The U.S. elections of last November had already temporarily interrupted the market’s belief of the previous narrative. At the turn of the year, the perception was formed that tax cuts and deregulation would spur U.S. growth, which would increase earnings’ yields, subsequently leading to higher inflation and higher bond yields.