Current Latest News

Bond jitters putting markets in ‘completely new light’, BIS says By Reuters

© Reuters. FILE PHOTO: Dividers are seen inside a trading post on the trading floor as preparations are made for the return to trading at the NYSE in New York

By Marc Jones

LONDON (Reuters) – The swift rise of borrowing costs on global bond markets over the last month could completely alter the outlook for financial markets, according to the central bank for the world’s central banks, the Bank for International Settlements.

In its latest quarterly report, the Swiss-based BIS also noted how wild retail trading-driven swings in stocks such as GameStop (NYSE:) recently had helped whip up volatility.

The big shift however has been in the U.S. Treasury markets that tend to propel global borrowing costs on the sense that unprecedented stimulus will ignite inflation if COVID-19 vaccines allow economies to fully reopen this year.

Benchmark 10-year U.S. yields climbed above 1.6% last week, extending this year’s near 70 basis-point jump that has jacked up sovereign borrowing costs in Europe, Japan and elsewhere.

“The recent market jitters confirm that the back-up in bond yields and reflation trade are casting the financial market outlook in a completely new light,” said Claudio Borio, Head of the BIS’ Monetary and Economic Department.

“People just saw low rates for as far as the eye could see, whereas now they have started having doubts about how long these conditions would last.”

Economists have drawn parallels to the 2013 taper tantrum, when bond yields rose dramatically after then-Fed Chair Ben Bernanke told lawmakers the Fed could take a step down in its pace of purchases of assets that had been buoying markets.

Borio said the key to whether markets would have another lengthy tantrum was firstly dependent on whether world growth did accelerate quickly, and then also what the major central banks did in response to rising bond yields.

Current Fed Chair Jerome Powell gave assurances last week the bank was not about to dial down stimulus. ECB President Christine Lagarde has delivered a similar messages, but the United States has just agreed a new $1.9 trillion stimulus package.

Central banks “will have to work out what the implications of that (rising bond yields) for their objectives and respond accordingly,” Borio said, referring to mandates to curb inflation and keep financial markets from running out of control.

On the wild stock market moves this year, he said it was typical of retail investors getting involved during periods of euphoria.

“Whenever a taxi driver starts talking about what is happening in the stock markets it means something significant is going on,” Borio said.

For full report click

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Source link

Related posts

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy