Investors brace for central banks’ retreat from bond markets

Financial Times/Tommy Stubbington and Kate Duguid/2-19-2022

“The biggest buyers in bond markets are poised to become sellers, as central banks that have bought trillions of dollars of debt since the 2008 financial crisis start trimming their vast portfolios.”

USAGOLD note 1: If you are looking for background on how the quantitative tightening process might unfold, along with its implications for the global bond market, this Financial Times article is foundational. If central banks follow through with announced policy change, we stand at the brink of a paradigm change in monetary policies formerly in place for 13 years.

USAGOLD note 2: One London trader says the bond market is now trading in “cloud cuckoo land” – that the markets have not in any way priced in quantitative tightening. Another says that the Fed will be watching closely what happens with UK’s QT program as “quite a useful control experiment.” Somehow, we think those are two particularly important pieces of information for gold investors to digest.

USAGOLD note 3: A question lingers: How will governments finance their massive deficits once the biggest buyer of debt – their own central bank – exits the market? We have already seen early signs in bond yields as to what might occur. Yields could rise much faster than the market is now anticipating.


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