For more than 40 years, betting on sovereign bonds of developed countries has to follow a simple rule: interest rates will fall. The US 10-year Treasury bond yield reached a peak of around 16% in 1981, and has been steadily declining since then, approaching 0.5% at the most severe stage of the pandemic. Bond prices rise as yields fall, so the fall in long-term interest rates has brought considerable windfalls for bondholders.

Predictions of this trend reversal often fall into vain—investors regularly ask how interest rates might fall, just to explore new depths in interest rates. However, this time, the decades-long investment trend may really be over.Despite a slight rebound, this week may mark the end of the bond bull market as the central bank begins Long and slow tightening cycle And the long-awaited “normalization” of monetary policy. If not, then policymakers have more reason to worry, because this may indicate that the rich world is trapped in low inflation and low growth.

The Federal Reserve, the world’s most important central bank, announces that it will start Scale down its pandemic asset purchase planAfter the pandemic, the central banks of New Zealand, Norway, Canada, and Australia began to limit monetary stimulus measures. Although the Bank of England was puzzled by investors betting on a rate hike at its meeting on Thursday, people generally expected a small rate hike next month. Emerging markets are tightening even more: Polish Central Bank The rate hike is 75 basis points, which is the second rate hike in two months.

So far, the impact on the U.S. bond market has been limited because the Fed has rightly stated that any future interest rate hikes will be gradual, and the shift to a more “normal” position will be slow; it will reduce quantitative easing this month The pace of asset purchases, not a complete stop. In Australia, after the central bank stopped defending the yield target of bonds maturing in April 2024, the interest rate on the country’s 10-year bond reached its highest level in two years. However, even so, they are still close to historical lows. In fact, the three major English-speaking banks that announced policies this week—the Federal Reserve, the Bank of England, and the Reserve Bank of Australia—all oppose expectations that the market will quickly tighten policies to combat inflation.

Traders and central bank governors are cautious, believing that the more basic trends behind the slowdown have not disappeared, whether it is technological change, globalization or the aging of Western society, it is understandable. But this is an argument for keeping long-term interest rates relatively low, even in more normal times, rather than letting them fall further: during the pandemic, none of these factors have become more deflationary. In fact, China’s changing role in the global economy is potentially reducing a source of deflationary pressure. Overall, the current bond bull market case is a bear market case in the rest of the world-this week’s change in monetary policy reflects a relatively strong recovery from the pandemic.

However, the bull market may end in a more unpleasant way. If the central bank loses control of inflation expectations, rather than anchoring them near the target, interest rates will eventually rise without reflecting the improvement in the growth prospects of rich countries. Even if the central bank’s policy interest rate rises, real interest rates — after adjusting for the effects of inflation — will remain low. For this reason, bond traders and the rest of us should hope that the central bank can “normalize” for the right reasons.