After several months of bond rally, long-term rates for
\nG10 countries are on an uptrend again. The previous
\nphase of yield curve resteepening dates back to Trump\u2019s
\nsurprise presidential election victory in the US, with the
\nensuing hopes of massive fiscal stimulus. Disappointment
\non 1Q growth on the other side of the pond, along with
\nthe executive\u2019s stalemate in the tough negotiations with
\nCongress ended this downtrend on sovereign bonds. This
\ntime, the sell-off on fixed income was not due to an
\nimprovement in world growth, which has stabilized at a
\nthree-year high, or fresh promises of fiscal generosity,
\nbut rather was a result of a slew of menacing comments
\nfrom central banks (Fed, ECB, Bank of England, Bank of
\nCanada, Swedish Riksbank). <\/p>\n
Despite different specifics for each of the economies
\ninvolved, the sound performance from world growth,
\nequity markets on a high and desperately low volatility
\nare shared factors that can explain this change in tone
\nfrom central banks.<\/p>\n
In Canada, the change in stance seems to be part of a In Sweden, a small economy that is highly dependent on In the UK, Mark Carney has to deal with an economy that In these four countries, the danger is that the In the US, the UK, Sweden and Canada, central bankersIn the US, the UK, Sweden and Canada, central bankers
\nhave taken on board an economic situation that is coming
\nclose to full employment, with a risk of overheating not of
\ninflation, but rather of private debt and asset prices (real
\nestate, equities).<\/quote>
\n The Chair of the New York Federal
\nReserve clearly expressed the Fed\u2019s frustration on
\nflattening of the yield curve since the start of the
\ntightening cycle that kicked off in 2015, which, as it had
\nindicated in a speech in late 2015, would warrant an
\nacceleration in monetary tightening (rate hikes, balance
\nsheet pruning).<\/p>\n
\nwider strategy to counter the real estate bubble that has
\nemerged in several states, and includes several macroprudential
\nmeasures i.e. borrower stress tests, tax on
\nforeign investment.<\/p>\n
\nexternal trade, the Riksbank has long favored currency
\ncompetitiveness at the expense of financial stability, to
\nthe extent that it let household debt rise to worrying
\nlevels.<\/p>\n
\nis close to full employment but which will suffer from a
\npolitical and economic shock from the UK\u2019s forthcoming
\nwithdrawal from the EU and high imported inflation.<\/p>\n
\nnormalization in interest rates will come too late to avoid
\na severe correction in asset prices, with retroactive
\neffects on the economy and the prospects for hitting the
\ninflation target, thereby revealing the conflict between
\nthe central banks\u2019 institutional mandate (inflation, full
\nemployment) and financial stability (role played by
\nwealth effects relating to asset valuations in reaching full
\nemployment).
\n
The ECB is not (yet) faced with this dilemma, but it must
\nsteer its communication to deal with another ambiguity
\narising from the conflict between the risk of overheating
\nin Germany on the one hand, and support for debtridden
\nperipheral economies on the other.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"
\nhave taken on board an economic situation that is coming
\nclose to full employment, with a risk of overheating not of
\ninflation, but rather of private debt and asset prices (real
\nestate, equities). <\/p>\n","protected":false},"author":1,"featured_media":64962,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,1943,1651,2087,1678],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/64964"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=64964"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/64964\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/64962"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=64964"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=64964"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=64964"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}