The bottom line is that the central banks did about what the markets had expected in advance.
(Photo: AP)
Frankfurt After the two largest central banks in the world initiated a change in monetary policy, things are getting uncomfortable for investors. “Now is the end of fun,” says Jan Viebig, chief investor of Oddo BHF in Frankfurt. He warns of bonds with long maturities or weaker credit ratings, and of stocks with overly airy valuations. On the other hand, he recommends stocks with quality: not an easy term, but there are exchange-traded funds (ETFs) that specialize in this.
The US Federal Reserve (Fed) announced on Wednesday that it would reduce net purchases of bonds to zero by March. This means that the Fed will not pump more liquidity into the markets afterwards and will no longer put the yields on longer-term bonds under pressure.
Conversely, this means that there is less demand for bonds, which tends to weaken their price. At the same time, Fed Chairman Jerome Powell has made it clear that in the coming year he will increase the key interest rate, which is currently close to zero, three times, probably by a quarter of a percentage point each time.
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