Yield plays to gain from dovish central banks
In the latest 21 March Federal Open Market Committee (FOMC) meeting, the Federal Reserve surprised markets with its dovishness. Fed officials were not looking to hike rates for the rest of 2019, compared to the market consensus of one rate hike. But this dovishness is not a new phenomenon around the globe.
Earlier in March, the European Central Bank (ECB) delivered a policy U-turn with fresh stimulus plans, despite wrapping up its bond-buying programme in December 2018. At the same time, the ECB held its negative rate stance and pushed the prospect of an interest rate hike even further.
In Japan, the Bank of Japan (BOJ) kept its ultra-dovish monetary policy unchanged, while downgrading its assessment of the Japanese economy. Inflation in Japan has been stubbornly low. There are now talks of the BOJ ramping up further monetary stimulus, to aid the slow growth and persistently low inflation.
There is, however, one problem – the BOJ’s asset hoard, after years of quantitative easing, is now larger than its economy. What’s more, there is little sense where the limit stands for the BOJ.
Indeed, more than a decade after the global financial crisis (GFC), the G-3 central banks are still caught in uber-dovish land. With negative interest rates plaguing global financial markets, many global institutional investors are left with few choices when seeking yield.
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