For some anxious investors, bond markets have lost the plot.
The New York Stock Exchange building is seen from Wall Street in Lower Manhattan in New York, January 20, 2016. Wall Street moved deep into the red on Wednesday, with the S&P 500 hitting its lowest since February 2014 and extending this year's selloff as oil prices continued to plummet unabated. REUTERS/Mike Segar - GF20000101202
Having spent years chasing a 2% inflation target, these central banks are sufficiently mindful of their credibility to be spooked by what markets are saying. Hence their collective pivot toward easier policy, a U-turn from six months ago. “A lot of people have expectations of central banks being very accommodative and sensitive to financial markets. There’s a danger in that.”
On U.S. 10-year inflation protected securities , the “break-even” is around 1.6% which is where traders anticipate prices to be in a decade.The problem is markets have often under- or over-estimated future inflation, says Ian Samson, market analyst at Fidelity International. He cited 2013 and 2016 when two-year euro zone forward swaps sharply over-estimated future price growth.
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