J.J. Fernández Figares (Link Securities) | It is difficult to explain the reason for the recent rally in bonds, which has led to a significant fall in yields. Particularly when most of the macro figures published in the last few days have confirmed that “high inflation” is here to stay, at least for much longer than initially estimated by central banks. It is quite another matter if the latter, under pressure not to penalise the budding economic recovery, choose to ignore this situation, maintaining their ultra-loose monetary policies despite the medium-term risk to economies of a sharp rise in prices. Thus, and without going any further, yesterday (Thursday 14) it became known that China’s producer price index (PPI) reached the highest year-on-year growth rate in its history in September. Meanwhile this same price indicator in the US reached its highest level since the beginning of the 1980s.
The only macro number released in recent days that is “non-inflationary” was the initial weekly jobless claims. And this is only because of the current state of the US labour market, with most companies unable to fill job vacancies and having to overpay some of their workers for lack of alternatives, The jobless claims are a good proxy for weekly unemployment, released yesterday in the US. For the first time since the start of the pandemic, this figure fell below 300,000 claims, having dropped significantly in the last two weeks, pointing to an improvement in the US job market. If the several million workers who remain outside the labour market opt to return, this will reduce wage pressures, which will also significantly reduce inflationary pressures on labour.
But let’s return to the positive behaviour of bond prices in recent days. As we have pointed out, this is very difficult to understand given that inflation remains out of control and the energy crisis points to further upward pressures on the prices of many fossil fuels. However, it is very likely that at least in the Eurozone, it is a consequence of central bank intervention. So we do not rule out that the ECB, as it did at the beginning of the year in order to prevent bond yields from rising further, has chosen to increase the pace of its bond purchases in secondary markets. This in order to prevent financing conditions in the region from deteriorating.
