Business World

Central banks say no tapering, but markets are not buying it


LONDON/NEW YORK — Central bankers worldwide have been unequivoca­l: There are no plans to cut back on money printing any time soon, let alone raise interest rates. Markets do not seem to be buying it.

US 10-year Treasury yields rose on Wednesday to oneyear highs above 1.4%, extending this year’s near 50-basispoint (bp) jump that has dragged up sovereign borrowing costs in Europe, Japan and elsewhere. Yields retreated later in the session to 1.37%.

The reckoning is that the spending step-up by US President Joseph R. Biden’s administra­tion and post-vaccine economic reopening will fuel global growth and an inflation rebound, forcing central banks to “taper” or withdraw stimulus ahead of schedule.

A brighter outlook may indeed justify higher yields. But what has started to spook markets is a sudden move up in so-called real yields, or returns in excess of inflation. That shift can tighten financial conditions, suck cash from stock markets and in general, hamper the recovery.

It is spooking policy makers, too. Central bankers have weighed in this week to stress policy will remain loose for some time. But the mantra seems to be falling on deaf ears.

US Federal Reserve Chair Jerome Powell knocked yields just a couple of basis points lower after commenting that the inflation target was more than three years away.

Euro zone yields only briefly heeded European Central Bank (ECB) chief Christine Lagarde’s warning on Monday that the bank was “closely monitoring” the recent rise in yields.

The reason, according to ING Bank, is that markets are pricing “with an increasing degree of conviction” the end of ultra-easy policies.

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