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Macroscope | Why China’s central bank is the ‘reliable boyfriend’ bond markets need
- Bond investors have faced a flurry of confusing and sometimes misleading messages from Western central banks, creating a disconnect in expectations
- In contrast, China’s central bank has been a paragon of restraint as it pursues financial stability above all other goals
Reading Time:3 minutes
Why you can trust SCMP
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A mood of mistrust pervades global bond markets. Investors have been piling pressure on leading central banks in the past few months, calling on them to explain how they intend to prevent the surge in inflation from getting out of hand without endangering the recovery.
The signals from central banks have been confusing and, in some cases, misleading. This has resulted in a dangerously wide gap between bond investors’ expectations about the timing of interest rate increases and central banks’ forward guidance.
The disconnect is most apparent in Britain, where the Bank of England’s decision last week not to raise rates despite having strongly hinted that they could rise this year stunned investors.
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The move sparked criticism that Britain’s central bank was once again behaving like an “unreliable boyfriend”. It was the same accusation levelled at it in 2014 when it flirted with – and then rejected – higher borrowing costs.
Other central banks, notably those in Australia and Canada, have also confounded investors. Their decisions are fuelling uncertainty about the severity of the threat posed by higher inflation and causing intense volatility in short-term government bonds.
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What are CPI and PPI?
What are CPI and PPI?
Given the global nature of the sovereign debt market and the worldwide problems of rising inflation, the communication breakdown between central banks and investors has ricocheted across bond markets.
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