Global: Escaping the hydra
There seems to be almost universal acceptance that central banks have created a liquidity bubble. And the logic goes that, like all bubbles, this should end with a pop. But the current situation is different from traditional speculative booms. It was born out of crisis to deal with a dysfunctional economy. It wasn’t driven by private sector speculation fuelled by animal spirits of fear and greed. While this might have created imbalances, these form a risk that can be met by central banks normalising policy. Bond yields will move higher as monetary policy tightens. This won’t be the start of a secular bond bear market, but will be enough to warrant short core bond market positions. The biggest opportunities will come from currencies. We expect the euro will move back to $1.30-35 over the next 12 months.