Natixis: The trap in which central banks have become stuck
October 29, 2012
Several central banks (Fed, BoJ, BoE) are keeping long-term yields at very low levels by using two tools:
1. Virtually zero key intervention rates;
2. Quantitative easing.
The Bund is benefiting from its safe-haven status and from a repo rate at 0.75%.
Almost everybody is applauding the central banks’ "audacity". But oddly enough, the risks associated with these monetary strategies are still to a large extent underestimated. Investors seem to be satisfied with the central banks’ claim that they will be able to implement "exit strategies" in due course. We are not convinced
about this, and believe, on the contrary, that they have become stuck in traps from which it will be difficult to get out without a sharp bond market correction.
See the full report from Natixis in the research section of EU.Cbonds.