Swiss Private Bank Bordier & Cie Launches Crypto Trading for Clients

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Bloomberg

Central Banks in Stimulus Dilemma as Reflation Bets Lift Yields

(Bloomberg) — The unprecedented $9 trillion rescue mission by central banks to haul the world economy from its coronavirus recession is being tested as rising bond yields and inflation bets threaten their ability to keep borrowing costs down.While Federal Reserve Chairman Jerome Powell this week called the recent run-up in bond yields “a statement of confidence” in the economic outlook, other counterparts are sounding less sanguine as their recoveries lag that of the U.S..European Central Bank President Christine Lagarde said Monday that she and colleagues are “closely monitoring” government debt yields. The Bank of Korea warned it’ll intervene in the market if borrowing costs jump, Australia’s central bank has been forced to resume buying bonds to enforce its yield target and the Reserve Bank of New Zealand Wednesday promised a prolonged period of stimulus even as the economic outlook there brightens.Because government borrowing costs are used as the benchmark for pricing loans to businesses and consumers, any increase in yields trickles through to the real economy. That counters the campaign by central banks to drive recoveries with cheap money, potentially forcing them to deliver even more stimulus at some point.“It’s the U.S. bond market pulling up global bond yields, and in some cases in ways that are moving faster than they’d like,” said Ethan Harris, Bank of America Corp.’s head of global economic research. “If you’re in countries outside the U.S., you’re looking at this as kind of an unwelcome import.”In the U.S., 10-year Treasury yields have risen more than 40 basis points since the end of December as its economy shows signs of improving, vaccinations roll out and lawmakers ready even more fiscal stimulus. Economists at JPMorgan Chase & Co. now see growth of 6.2% this year, up from 4.2% at the start of the year.More broadly, the yield on the Bloomberg Barclays Global Aggregate Index, which includes investment-grade sovereign and corporate debt, has risen 20 basis points this year. That follows a 62-basis-point decline in 2020.The jump in U.S. yields threatens to drag up other markets, challenging the policies of the ECB, Bank of Japan and Bank of England, Krishna Guha and Ernie Tedeschi of Evercore ISI told clients in a report this week. That’s a worry for those policy makers whose focus remains more on stoking growth than containing any nascent inflation pressures.The ECB could be in a particularly uncomfortable spot as it has pledged to keep financing conditions “favorable” through the crisis and is already facing a weaker recovery than counterparts.Yields on 10-year German government bonds have climbed to around -0.3% this month from -0.6% in November while equivalent French yields are now barely below zero, compared with -0.3% three months ago.One option for the ECB is to accelerate bond buying via its pandemic emergency…



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