It all seemed so certain.
Market participants watched the yield on the 10-year German sovereign bund tick ever closer to the zero mark in April, all the time taking bets on when, not if, it would mean that investors would be paying for the privilege of holding German government paper.
But like many times before, market consensus got it wrong and the fixed income markets snapped back causing a reversal in global assets like major equity benchmarks and foreign exchange.
"These shifts run counter to many of our core views, as well as what were clear consensus positions amongst many of our clients," a team at Goldman Sachs Global Investment Research said in a morning note on Wednesday.
Many are still in the dark as to what actually happened. Some believe that the European Central bank (ECB) might have slipped up in its bond-buying duties, causing the spike by leaving the market unattended for a matter of hours. But many see a growing debate about inflation as the real reason behind the move, with a resurgent oil price causing both stocks and bonds to move downwards.
The trifecta of moves – a stronger currency, rising yields and a falling equity market – had a coherent macroeconomic story about it, according to Goldman Sachs. This suggests that the market is questioning European policy commitment in an environment where inflation expectations are starting to inch higher, the bank said, which it adds could be caused by a recent climb in oil prices.
Fuel prices are a key ingredient to a basket of goods and services that make up inflation statistics in most countries, with oil being a major input in motor fuels and other manufactured goods. It can also impact on food prices as lower motor fuel prices reduces the cost of transporting goods. The Office for National Statistics in the U.K. has repeatedly highlighted the sizeable drops in the oil price and how that has weighed on consumer price data which has recently hit multi-year lows.