Subject
QE’s influence on Central Europe’s bond markets.
Significance
Hawkish signals from the ECB are adding to recent strains on global bond markets, causing German ten-year Bund yields to shoot up to their highest levels since July. The sell-off is contributing to sharp outflows from Central Europe’s local debt markets, already under pressure as monetary tightening starts in the region; the Czech Republic, which has raised rates twice since August, is suffering the largest withdrawals. However, the absence of large inflows since the ECB started quantitative easing (QE) in 2015 could help mitigate the fallout from its end.
Impacts
As OPEC members reaffirm their commitment to production cuts, oil prices are shooting up to their highest level in nearly three years.
Sales of speculative-grade US corporate debt have had their strongest New Year since 2014, a sign of enduring demand for high-yield bonds.
The three-year low in the dollar index will help keep financial conditions loose and buoy up emerging market currencies.
Capital Flows in Risky Times: Risk-on / Risk-off and Emerging Market Tail Risk