Foreign debt and Bank of England yields are at their highest levels in years: Here’s the impact on countries and businesses

Listen to the audio version of the article

Financial markets can sometimes be subtle and ironic. So despite the fact that oil prices fell on Monday Brent It has fallen below $100, the grip of high energy prices has eased, and the inflation nightmare has pushed government bond rates to record levels.
Returns from all over the world The Bund The interest rate on the 10-year bond has now reached 0.82%, a level not seen since July 2015. To understand the extent of the move: at the beginning of the year, the interest rate was -0.18%.
Rates Benzothiazines The 10-year Treasury bond rate rose to 2.47%, the highest level since March 2020. Even overseas, the situation is no exception: the 10-year U.S. Treasury bond rate reached 2.77% on April 11, the highest level since December 2018.
In market terms, this means the storm: Government bonds have been hit by the storm Such salesprices plummeted, causing yields to rise.

Reasons for Caporetto

There are two reasons. The first one is: Inflation continues to riseIn the eurozone, March data showed that the cost of living reached 7.5%. In the US, it rose to 7.9% in February and in March (data will be released on April 12) the market expects a further jump to 8.4%.
This underlies the second reason why government bond rates remain high: central banks have begun to rapidly reduce stimulus and have made restrictive monetary policy explicit.

In the United States, nine more rate hikes are expected between now and the end of the year (markets fear a restrictive approach even before the Fed meeting on May 4), as well as a reduction in securities purchases. 95 billion per monthThis means that the Fed’s generous injection of liquidity during this period Pandemic By buying securities, it will be withdrawn just as quickly. Unfortunately, the pandemic is not over yet and the economy is slowing down.

Bce: scudo non-proliferation?

The ECB is more backward and cautious, but The road is the same. In fact, on Thursday he should reiterate that he is about to stop buying government bonds. Then, later this year, it may have to start raising interest rates. Of course, the pressure from the “hawks” is great.

It is possible that the Eurota will combine these restrictive measures with a new instrument to prevent excessive widening of spreads on government bonds of peripheral countries (for external reasons only): an instrument with the capacity of an anti-spread shield (not yet designed) to increase market interest rates without triggering a new sovereign debt crisis. This indiscretion, launched by Bloomberg on Friday, April 8, was confirmed by market sources: This possible protection – assuming it is done in an effective, politically acceptable and non-Byzantine way – would immediately have the effect of reducing the gap between countries. The contraction of monetary policy. But for now, it seems to be just a reckless act.