2022 is shaping up to be a volatile year for financial markets. Last year’s negative returns on benchmark bond indices such as the Barclays Global Aggregate and AusBond Composite were a result of a slow and steady realisation that higher-than-expected inflation will require higher interest rates. This year represents the next phase, with the outlook depending on how far financial conditions can tighten without jeopardizing the recovery. This is not just the prospect of rate hikes – including from the RBA – but also the shrinking of bloated central bank balance sheets and negative impulses from fiscal policy.

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