INSUBCONTINENT EXCLUSIVE:
By Emily Barrett, David Goodman and Simon KennedyWhen it comes to reversing their crisis-era bond buying, central bankers are focused on the
Traders in risk assets care more about what could be a painful journey.
The contrasting views upset markets this week
Chairman Jerome Powell reiterated the notion that the Federal Reserve would remain on auto pilot when trimming its $4 trillion portfolio,
and investors dumped equities in response.
The tension may prove even more consequential in 2019 now that the European Central Bank is
stopping -- though not yet unwinding -- asset purchases
volatility in the riskier markets that thrived under quantitative easing.
The liquidity drain is potentially destabilizing for risk markets
because central banks are removing cash that was cheap to borrow and invest in high-yielding assets, including in emerging economies
Some analysts argue that so-called quantitative tightening is behind the recent selloff in equities and credit markets, overshadowing trade
Against this backdrop, he says short-maturity Treasuries are attractive, with high-yield credit looking particularly vulnerable.
Views
differ on exactly when the central-bank pullback will start to bite, or if it already has
Ferridge estimates the net drain on liquidity began in October, when the ECB halved monthly asset purchases to 15 billion euros ($17
billion), in preparation for stopping them this month
Also in October, after a year of shrinking its portfolio, the Fed raised the maximum monthly runoff to $50 billion -- $30 billion for
Instead, mortgages have performed in line with equities and Treasuries rallied, he wrote.
Benoit Coeure -- a potential future ECB president
The Fed, the Bank of Japan and the ECB still have almost $15 trillion in their coffers from their fight to fend off deflation, meaning the
financial system remains awash with money, and interest rates are still low
buoying the most liquid markets, Citigroup Inc
credit strategist Matt King argues that riskier, less actively traded markets are driven by the trajectory and not the level of assets.
As
