Global View June 2015 - Another 'Conundrum': A Brave New (and Ugly) World For Bonds

A constant theme in our research is the role of China in setting World interest rates. Western Central Banks affect the short-end of the term structure, but they have an increasingly limited impact on the long-end where liquidity matters most. US Treasuries and Bunds are the ‘safe assets’ for the World financial system, and the major fault-line is the Chinese financial system. In its latest battle to reduce domestic credit risk, China’s People’s Bank is sending tremors through global bond markets. This looks similar to the impact of Japanese buying on US yields in the mid-1980s.