Macroscope | Why this year’s bond market ‘tantrum’ is less dangerous than 2013’s
- Fears of a 2013-style meltdown are overblown as, for one thing, the fundamentals of emerging markets are stronger today
- As long as bond yields are rising for the right reasons, markets are likely to treat the upward pressure as confirmation that global growth is accelerating
At the end of last year, government bond markets were still signalling deep concern about the economic devastation wrought by the Covid-19 pandemic amid a fierce resurgence of the virus in Europe and the United States.
Throughout December, the yield on the benchmark 10-year US Treasury bond remained firmly under 1 per cent, while the global stock of negative-yielding debt hit a record high of US$18 trillion.
While the sell-off abated somewhat this week, the sharpness of the moves, especially in the normally staid US Treasury market, has startled investors and set off a debate over the causes and consequences of the rout.
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Although the underlying reason for the spike in bond yields is a distinctly positive one – expectations of stronger growth – the moves over the past several weeks are attributable to growing doubts about central banks’ determination to keep monetary policy ultra-loose in the face of a surge in inflation.