A series of surprise actions by some of the world’s largest central banks fretting about runaway inflation has left bond investors battered. Now, a growing chorus of investors is calling on policymakers to move fast to end the uncertainty.
Until central banks are able to bring down inflation, some investors said, markets will not have any certainty about rates. Their best way forward may be to get to neutral interest rates -- the level at which monetary policy is neither stimulating nor restricting the economy -- as fast as they can, the investors said.
"Playing catch-up is harder now as the central bank let ... the first best policy response slip through its fingers" last year, said Mohamed El Erian, chief economic adviser at Allianz and chair of Gramercy Fund Management. In Europe, Germany's 10-year Bund yield hit an eight-year high, at 1.93%, last week. In Switzerland, 10-year yields were set to end the week almost 50 basis points higher and set for their biggest weekly surge since March 2020.
That is easier said than done. Inflation is a poorly understood phenomenon. The market has not dealt with a regime of rising prices in decades.
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