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How Will Markets React When Central Banks Tap the Breaks?

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It made sense during the financial crisis to throw money at the problem. Since then, balance sheets of the central banks in Europe, China and the U.S. have ballooned to $13 trillion, at least double their levels in 2008—largely through buying government bonds, and even debt and shares in companies, such as a French yogurt-maker and Japan’s top soy-sauce brewer. Now markets and analysts are seriously pondering what will happen if and when policymakers reverse course. What they don’t want is another “taper tantrum,” when yields quickly rose in 2013 after then-Federal Reserve Chairman Ben Bernanke talked about buying fewer bonds. Markets are going to have to find a way to absorb the banks’ moves. “You know what they say about mountaineering right? The descent is always more dangerous than the ascent,” said Stephen Jen, London-based chief executive of hedge fund Eurizon SLJ Capital Ltd.

 


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