Systematic flows weighed on equities this week. Acute fears were widespread that the Fed was about to jump the gun over inflation concerns, pushing up bond yields and, in turn, undermining risk sentiment in the stock market. Sensational and pretentious headlines in the press describe the Fed’s tightening steps as unprecedented. In the past two weeks, speculation has been rampant that the Fed was so behind the curve that the monetary authorities needed to raise the policy rate by 50bps and start running down their holdings of government bonds immediately. Although the dramatic bond selloff, in terms of its pace and magnitude, felt like a panic attack, it did not meaningfully alter inflationary expectations, credit spreads or the shape of the yield curve.
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By Hubert Marleau
By Hubert Marleau