Amid the market ructions, central bankers are not showing signs that they are wavering and ready to rush in to save the day.
“I struggle to see how the recent yield moves don’t increase the risk of an accident somewhere in the financial system given the relatively abrupt end over recent quarters of a near decade and a half where the authorities did everything they could to control yields,” said Deutsche Bank strategist Jim Reid. “So, risky times.”
As recession fears have ebbed, the idea that policymakers will have to quickly reverse course – the so-called pivot – is fast losing traction. Britain is looking to limit spending, and some German politicians want to reinstate a ceiling on borrowing known as the debt brake. That has all changed, but most firms raised so much when rates were near zero that they did not need to tap markets when the hiking cycle began. The problem now is “higher for longer”.
Higher bond yields have slammed valuations on properties as buyers demand returns that offer a premium over the risk-free rate.Borrowers face the choice of injecting more equity, if they have it, or borrowing more at costlier rates.