The rebound of global growth is sounding the death knell for easy money, so debt markets should see the backs of central banks in 2018, although a gradual withdrawal should help avoid a new tantrum sending interest rates spiking.
The colossal sums that central banks injected into the financial systems to ward off economic cataclysm went primarily into the debt markets, which will have the biggest adjustment to make as part of the so-called normalisation of monetary policy by central banks.
As central banks slow down their purchases of debt and then reduce their holdings the interest rates that governments and companies pay to borrow money are expected to climb higher.
While everyone expects borrowing costs to rise in 2018, the key question is whether it will happen smoothly or not. Any disruptions in the credit markets can have a severe impact on the overall economy.
In Europe, where the European Central Bank (ECB) is set to continue buying 30 billion euros of assets each month until September, ultra low or even negative on certain maturities, there is a not of optimism in the air.
“We don’t see a strong break with 2017″ said Felix Orsini, who handles government debt issues for Societe Generale’s commercial and investment bank.
“There is a deep resilience of the market, and there is still plenty of appetite for risk and there is a large margin for manoeuvre before the level of dissuasive rates,” he told AFP.
HSBC’s Frederic Gabizon shares that view. He foresees “a moderate increase in rates paid by companies and European states in 2018

Source: AFP