Bond investors were unnerved in the second quarter as major central banks signaled a more aggressive monetary tightening in their fight to prevent inflation from spiralling out of control, making a global recession more likely. Long-dated conventional and inflationlinked bonds have posted the biggest declines. Credit also fell, especially euro high yield bonds.
Central banks have dialled up their policy actions by implementing increasingly aggressive rate hikes to control spiralling inflation and quantitative tightening to reduce their enormous balance sheets. The Fed’s bazooka 0.75% interest rate increase in June, combined with high inflation, threatened to tip the US economy into recession. Growth forecasts for 2023 overall are looking increasingly anaemic. US money supply contracted in April as financial conditions tightened.
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