Stubbornly high inflation in more wealthy economies shook bond markets last week, as investors began to expect central banks to tighten monetary policy quickly.
This week, all eyes will be on the Federal Reserve, which is expected to start winding down its $120-billion-a-month asset-buying programme, with the goal of ending those purchases by next June.
Markets indicate that investors are increasingly betting on the Fed raising interest rates in the United States next summer, in response to recent inflation reports and signals from other major central banks that they are tightening policy.
The possibility that the Bank of England will be the first major central bank to raise interest rates has grown in recent weeks, following Gov. Andrew Bailey's warning on Oct. 17 that the central bank "will have to act" if rising commodity and energy prices raise Britons' expectations of future inflation.
Annual inflation in the United Kingdom was 3.1 percent in September, but it is expected to rise to around 5 percent in the coming months, more than twice the bank's target of 2 percent. Rates will be decided by officials at a meeting on Thursday. According to CME, investors in interest-rate futures markets see a 62 percent chance of a rate increase.
The Bank of Canada surprised markets last week when it announced the end of its government bond-purchasing program and accelerated the timetable for raising its benchmark interest rate from its current near-zero level.
Meanwhile, the Reserve Bank of Australia, which holds a policy meeting on Tuesday, stunned investors last week when it declined to defend the 0.1 percent interest-rate target it set on bond yields maturing in April 2024. Bond investors dumped government debt after the release of a stronger-than-expected inflation report.
European Central Bank President Christine Lagarde pushed back against market expectations that the ECB would raise interest rates next year, but investors thought her message was too weak and increased their bets that the ECB would raise rates soon.
Fed Chairman Jerome Powell will hold a press conference following the central bank's policy meeting on Wednesday. Investors will closely monitor his remarks for cues on how he is reacting to recent changes in market expectations for inflation and short-term interest rates.