For investors, and central bankers, there’s an important question posed by the turbulence in financial markets last week as bond yields spiked and share prices tumbled. Was that a mini “tantrum” or a preview of a more structural and historic change?
Although the US Federal Reserve Board has responded to the reflation talk by indicating it has no intention of tapering its $US120 billion a month of bond purchases or lifting the Federal Funds rate any time soon, well-credentialled economists are forecasting a US economic growth rate running at well above five per cent and inflation of more than three per cent by the end of the year as the recovery, fuelled by the Biden stimulus, develops real momentum.
Having enjoyed baked-in expectations of “lower for longer” rates and a conviction within markets that central banks will always intervene to prevent financial instability, however, any abrupt movement in market interest rates has the potential to cause significant disruption in financial markets, if not mayhem.
There’s an inverse relationship between bond yields and bond prices. As yields fall existing bonds, with their higher yields, become more attractive and valuable. Bonds, he said, were not the place to be these days and fixed interest investors – whether pension funds, insurance companies, retirees - faced a bleak future.
Us personal consumer expenses is 1.5 percent? Too early to say bull 🇺🇸🇺🇸🧸🧸
Battle lines drawn ... Central Banks are all maintaining doveish rhetoric
Ya think? No one saw that coming. 🙄