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The bond market is also underpricing risks

Tong Kooi Ong
Tong Kooi Ong8/1/2019 07:30 AM GMT+08  • 7 min read
The bond market is also underpricing risks
(Aug 5): Interest rates around the world are heading lower as major central banks embarked on a fresh round of monetary easing. The US Federal Reserve cut its short-term policy rate, by 25 basis points as widely expected, for the first time since the end
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(Aug 5): Interest rates around the world are heading lower as major central banks embarked on a fresh round of monetary easing. The US Federal Reserve cut its short-term policy rate, by 25 basis points as widely expected, for the first time since the end of the global financial crisis (GFC).

Earlier, the European Central Bank (ECB) signalled that it was ready to push deposit rates further into negative territory and restart quantitative easing (QE). Any normalisation of interest rates is now pushed beyond 1H2020, as inflation continues to fall well short of target. Plans for renewed stimulus come as manufacturing activities in the biggest eurozone economies, including Germany, France, Italy and the UK, slumped sharply with trade war conflicts weighing on exports. Manufacturing weakness is also seen in Asia and the US.

Central bankers remain convinced that cheap and cheaper debt is the answer to flagging growth. The resulting extraordinary monetary policy easing over the past decade has been key in driving up global indebtedness — though economic growth has been disappointingly sluggish.

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