Central banks’ unconventional policies undoubtedly rescued financial markets in 2020 when the Covid-19 pandemic was at its height. But those actions now leave central banks joined at the hip with credit markets, and market participants more reliant than ever on their support. From a credit-market perspective, this represents a Catch-22 for both central banks and investors. How can central banks continue to support the economic recovery while developing an exit strategy that doesn’t undermine market stability? And how will investors, who prize stability but also seek higher yields, react if and when monetary policymakers step back from providing direct market support?

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