In their crusade to get rampant inflation under control, the world’s major central banks risk fueling further chaos in bond markets that play crucial roles for the economies they’re trying to protect.
Policy makers, in a rush to rein in consumer prices, are quickly lifting interest rates and ending programs that made them the dominant buyers of government debt in places such as the U.S., Europe and Australia. Investors have yet to pick up the slack, helping create a liquidity drought that’s led to historic swings in yields in recent months.
“Worst we have ever seen,” is how Andrew Brenner, head of international fixed income at NatAlliance Securities, characterizes conditions in the bond market. “Central banks ruined liquidity from what it used to be.”
