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Market Commentary: Central Banks Compelled to Hold Tight Thumbnail

Market Commentary: Central Banks Compelled to Hold Tight


Thoughtful commentary from our partners at BlackRock:

Holding tight

Sticky inflation is leading major central banks to keep policy tight. This helps make emerging market debt more attractive as policy loosens and benefits short-dated bonds for income.

Market backdrop

Developed market short-term bond yields jumped after central banks signaled more rate hikes to come. We see rates staying higher for longer.

Week ahead

This week’s PMIs will help gauge how much rate hikes have cooled activity. We already see signs that a mild recession has unfolded in the U.S. and euro area.

Sticky inflation looks to compel developed market (DM) central banks to crank policy rates higher – and keep policy tight for longer. The Federal Reserve paused last week but pointed to more hikes on the way. The European Central Bank (ECB) raised rates and made clear it wasn’t done. Others hiked after earlier pauses. This helps make emerging market (EM) debt More attractive due to looser policy potential, like recent rate cuts in China. We also like income opportunities such as short-dated bonds.

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