It’s been a tough few days for holders of government debt. The value of sovereign bonds has dipped by $340bn (£223bn) since the start of last week. The correction has followed a tremendous rally in government bond prices, prompted by fears of deflation and central bank bond-buying schemes. Even Bill Gross, the bond trading veteran, has weighed in to say that German 10-years, or bunds, look to be “the short of a lifetime”.But what is prompting the massive sell-off in sovereign notes?

The easiest explanation for falling bond prices is that a climb in commodity values, including in oil and copper, could signal the end to global disinflationary episodes. A steep fall in the price of oil was the catalyst for fears over low inflation and even deflation at the beginning of the year. Now these have started to rebound, and along with them inflation forecasts. Jim Reid, of Deutsche Bank, said that the “sell-off seems to be part of a steady re-pricing of inflation risk, and it was noticeable that oil hit five-month highs yesterday” as Brent closed up at close to $68 a barrel. MORE