(Bloomberg) When the Federal Reserve starts pulling hundreds of billions of dollars out of the American bond market later this year, stocks will tumble, growth will weaken and bonds will rally back from their worst losses on record.
That’s one scenario.
Global Race to Tapering Ignites Hunt for Next Currency Winners
Jill Ward and Anchalee Worrachate, Bloomberg News Pedestrians use a footbridge with the skyscraper office buildings of the Moscow International Business Center (MIBC), also known as Moscow City, beyond in Moscow, Russia, on Sunday, May 2, 2021. Facing a rising wave of Covid-19 infections and a vaccination rate that isnât keeping up, the Kremlin is trying to contain the epidemic without alarming Russians. , Bloomberg
(Bloomberg) Global central banks are starting to wind down the trillion-dollar money printing machines set in motion to rescue their economies in 2020. Getting ahead of them is becoming this yearâs biggest currency trade.
“Sentiment is driving breakeven rates higher,” said Bob Stoutjesdijk, a Rotterdam-based fund manager at Robeco Institutional Asset Management, adding that breakeven rates, while “overstrecthed on a fundamental level”, can rally further as the economy reopens.
Financial markets the world over have been signalling that inflation may mount a comeback after months of ultra-loose monetary policy. The UK has been at the forefront of the resulting global bond sell-off, fuelled by the pace of the British vaccine roll-out and a recent hawkish tilt by the Bank of England.
While the UK’s rate of consumer inflation has held below the bank s 2 per cent annual target for 18 months, economists expect it to accelerate to just below that goal this year. That is raising the possibility that central bank officials could opt to tighten their monetary stance.