3 Central bank rate cuts & falling global yields


It was an interesting morning yesterday with 3 Central banks cutting rates in a span of around 4 hours.  Reserve Bank of NZ was expected to cut rates but did so for 50bps, much bigger than expectation and a day after bumper employment report. Bank of Thailand cut rates by 25bps, first rate cut in 4 years where most analysts expected status quo. Reserve Bank of India did a "mildly surprising" 35bps cut after cutting rates by 25bps in each of the last three meetings. Interestingly, all 3 central banks promised to cut more in the future meetings if required. 

These cuts are not to be seen in isolation. Fed cut rates last week by 25 bps and stop Quantitative tightening of the balance sheet.  SNB, ECB and BOE have not started the easing but it is just a matter of time given how the bond yields have formed a bubble over the past 6 months once the global central banks have embarked on a monetary easing environment. Yield curves are flattening and we have remarkable situations in SwitzerlandAustria and Germany where the curves are well into their negative/cheap territory for years ahead.
The value of negative yielding debt hit a record $15 trillion this week - up by $1 trillion in just two days on Friday and Monday . If you exclude the US from the picture, roughly 44% of global bonds are trading at negative yields. 
Three things stand out in this unprecedented situation:
(a) Market is pricing in that the global growth slowdown is not going to improve in the foreseeable future with US-China trade spat and other relevant tariff wars.  Central banks will continue to ease monetary policies to cut rates further thereby bonds will continue to surge and push yields lower
(b) Most central banks are worried about the deflationary pressures as negative returning yields continue mount to be at record levels. The lure of safe heaven assets like Gold, Bitcoin and other crypto currencies may continue to rise.
(c) If the global economy continues to move towards a possible recession, safe heavens like treasuries will continue to be seen cheap investment pushing more inflows and lower yields.

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