Chart of the week: 03/11/2019 – 03/15/2019
Developed Market Sovereign 10-Yr Yields
Extraordinary policy measures are proving extraordinarily difficult to undo.
It may be no coincidence that as two of the world’s biggest central banks have made dovish policy shifts, interest rates have also declined.
On November 28, 2018, Fed Chairman Powell altered the Fed’s forward guidance on rates from being, “a long way from neutral…probably,” on October 3, to “just below neutral.” These comments were formalized in the Fed’s January meeting statement and minutes.
On March 7, 2019, the European Central Bank announced plans to make new cheap loans available for banks. This comes just three months after announcing that it would end its bond buying program.
As of the end of 2018, data from Bloomberg indicate that assets at the central banks for the countries in the chart now stand at a combined $15.9 trillion USD, approximately $54 billion more than the amount from 12 months ago, notwithstanding the nearly $500 billion by which the Fed has already reduced the size of its balance sheet.
The Bank of Japan’s balance sheet is now larger than its annual GDP; for the group as a whole, combined central bank assets represent about 40% of their combined nominal GDP.
In addition to the Fed floating the idea of “completing the normalization of the size of its balance sheet,” the fed funds futures market now shows a 33% chance of a rate cut by the end of 2019, vs. 0% of a rate hike.
If these policy reversals suggest anything, it may at the very least be that reliance upon the exceptional policy measures implemented in the wake of the financial crisis is proving more difficult to undo than initially expected.
Unless otherwise noted, data is sourced from Bloomberg.
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