Monetary policy desynchronisation may not be possible

Monetary policy desynchronisation may not be possible. On 15 and 16 October, we saw the US 10-year bond test the 2.0% level, although as of 17 October it had failed to breach that level in a sustainable way. The US bond market has returned to similar levels as before the 2013 sell-off in bonds that was caused by the 'taper tantrum' following the Federal Reserve's (Fed's) indication that it would begin to taper quantitative easing (QE). As the Fed attempts to normalise interest rates, other central banks continue to loosen monetary policy and enact QE. In previous tightening cycles, central banks have moved together. This desynchronisation of monetary policy is testing both bond and currency markets and in our view, may not actually work. Globalisation and larger trading blocs have tied countries to each other much more closely than in the past, so normalising rates from their current lows may require central banks to move together. Our latest report explores this thesis in more detail: (VIEW LINK)