Pro Perspectives 6/22/23

June 22, 2023

The Bank of England surprised with a bigger, 50 basis point, hike this morning.   
The 10-year UK bond yield responded to this larger than expected hike by moving lower, not higher. 
This takes the benchmark short-term rate in the UK to 5%, which is (maybe not so coincidentally) about where rates for the world's most important central banks are converging (with one exception, Japan).    
So, the major central banks of the world have been able to successfully exit zero interest rates (and QE) with an historically fast normalization of rates, all in the face of one of the most complicated global financial, economic and political environments in history — and without losing control of the bond markets.
How?  It's a "managed" normalization.  As we've discussed often in my daily notes, in the post-GFC era of no-rules central banking, they are in the practice of "fixing and manipulating."  And as long as it's done in cooperation with their global central bank counterparts, there are no penalties (not to the currency, not to the bond market, not to equity markets, not to foreign investment).
And, in cooperation, they buffer the effects of tightening by keeping the liquidity pumping from a part of the world that has the most severe structural deflation problem, and the biggest government debt load in the world:  Japan.
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