- The Wall Street Journal – Central Banks Fuel New Bets on Tighter Money as Inflation Rises Globally
Short-term bond markets have reacted to recent pivots by policy makers in Canada and the U.K.
Stubbornly high inflation across more wealthy economies last week prompted a shakeout in bond markets as investors began expecting central banks to quickly tighten monetary policy. All eyes this week will be on the Federal Reserve, which is likely to begin winding down its $120-billion-a-month asset-buying program with an eye toward ending those purchases by next June. Markets show investors are increasingly betting on the Fed raising U.S. interest rates next summer, following recent inflation reports and signals from other major central banks that they are moving toward tightening policy.
- The Financial Times – Bond traders ramp up bets on ‘big shift’ in global monetary policy
Investors test central bankers’ insistence that elevated inflation will be fleeting
Central banks normally dictate to the bond market. But now, investors are ramping up bets that policymakers have got inflation all wrong, and are forcing some to change tack. For much of this year, investors had swallowed central bankers’ mantra that there was no need to raise interest rates to combat a “transitory” burst of inflation. But an autumn surge in energy prices and the surprising persistence of supply bottlenecks in the global economy have sparked an increase in bets on earlier increases in borrowing costs.
- The Financial Times – Bad bets trigger waves of tumult in short-term bond markets
Some investors have been caught off-guard by vicious moves, say analysts
A violent shake-up in bond markets has intensified as fund managers are wrongfooted by a global drop in short-term debt, say analysts and investors. Stubbornly high inflation around the world and a hawkish response by some central banks have fuelled a rapid rise in short-dated government bond yields. At the same time, concerns about growth prospects in the coming years have kept a lid on long-term bond yields, resulting in a dramatic “flattening” of yield curves. Short-term bond markets have “experienced unprecedented volatility” this week, said George Saravelos, Deutsche Bank’s global head of currency research. He said a sell-off in Australia’s market was the most severe since 1996, while Canada had been hit with its worst decline since 2009.
- News – RBA waves white flag on bond yield target, so interest rates may rise sooner than expected
Traders have forced the Reserve Bank into submission, with the RBA declining to enter the market to buy April 2024 federal government bonds to defend its interest rate target. The Reserve Bank has maintained a 0.1 per cent yield target on the three-year Commonwealth debt that matures in April 2024, but market traders have recently repeatedly pushed the return on those bonds substantially above that benchmark.