12 to 18 September: Stall for Time

The last few weeks have seen a reversal in bond yields, with a bounce from all-time lows and steepening yield curves.

On the one hand, these moves could be viewed as a constructive step, with investors anticipating a more buoyant recovery. Alternatively, as we have argued, they could relate to the next potential iterations for monetary policy (helicopter money, higher inflation targets, expanded experimentation with negative rates) having the potential to generate proper inflation; going much further beyond the zero lower bound could challenge the faith in money as a store of value. More likely we think the bond market sell-off implies a scaling back of expectations for policy easing in the short-term.

Although most central banks outside the US remain biased to add stimulus, there is a lack of conviction and policymakers have no clear idea where to go next. As such, many central banks are stuck in wait and see mode. This week sees FED and BOJ meetings where any move may challenge this hypothesis.

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