Investors are beginning to get seriously interested in the idea that the BOJ and the ECB will change the composition of their bond purchases to steepen the yield curve. In effect, this would be the opposite of the Fed’s Operation Twist, which saw QE purchases concentrated on the long-end, chiefly to lower the yield on mortgage-backed securities. I think this story, at least partly, is to blame for the recent nudge higher in global bond yields. But we will know soon enough. This week's BOJ meeting should give us a hint of whether this narrative has any legs.
Read MoreInterest rates were first slashed to zero, then came successive rounds of QE, and most recently the ECB has led the world's central banks into the netherworld of negative interest rates. Neither of these tools, however, have worked completely according to central banks’ and governments’ wishes. Unless you have been living under a rock, you will have noticed that "helicopter money" has been touted as the next policy tool which central banks will deploy in their attempt to reach their "targets."
Read MoreThe European Central Bank initially received praise for its decision to push the deposit rate below zero as part of its truly unconventional monetary policy. The euro plunged, equities recovered, and euro area manufacturing outperformed its global peers.
Holders of long-term benchmark bonds have been handsomely rewarded by the ECB’s monetary policy experiment as 10-year yields in Germany have resumed their violent decline. And investors expect more, judged by the decline in short-term yields indicating a further interest-rate cut in March of at least 0.2 percentage points.
Read More