The Bank for International Settlements said, with the release of its quarterly review, that “prospects of a more robust economic recovery buoyed risky asset prices, with signs of exuberance reflected in the behaviour of retail investors.” And, “sovereign yield curves steepened as investors priced in higher inflation and fiscal support.” Also, “sentiment towards emerging market assets remained favourable, in particular in East Asia.”
“The recent market jitters confirm that the back-up in bond yields and reflation trade are casting the financial market outlook in a completely new light,” said Claudio Borio, Head of the BIS’ Monetary and Economic Department. “People just saw low rates for as far as the eye could see, whereas now they have started having doubts about how long these conditions would last.”
Central banks “will have to work out what the implications of that (rising bond yields) for their objectives and respond accordingly,” Borio added.
