2016 AM Mock Question 9d

Guideline answer says that inflation forecast is lower than consensus, supporting positive perfomance for government bonds. But shouldn’t it be neutral effect on bonds in case of inflation is below expectations? I was sure that only deflation would be positive for bonds if we’re talking about inflation…

Thanks!

And additionally I would have thought that inflation below expectation is positive for equity prices, so in my view inflation decrease was a factor to allocate more to equities from bonds not vice versa.

GDP growth decline and business spending growth decline are the two factors to allocate from equities to bonds - in my view, but yes the guideline answer lists GDP and inflation.

I’m not an economist, have not studied this stuff elsewhere.

Agree with you!