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JPMorgan Joins Goldman Saying More QE Needed to Cap Bond Yields
(Bloomberg) — Central bank quantitative easing programs may need to be ramped up to stave off a rise in bond yields, according to a JPMorgan Chase & Co. analysis that echoes a conclusion from Goldman Sachs Group Inc strategists.
The level of expected increase in supply this year — about $2.1 trillion — is offsetting the $1.9 trillion demand for bonds to the tune of $200 billion, the JPMorgan team concluded, implying upward pressure on yields. Goldman Sachs strategists last week said more issuance adds to the case for higher rates and steeper curves.
Policymakers have endeavored to force down yields in sovereign markets as governments spend trillions to help soften the blow from the coronavirus pandemic that’s caused economies to almost totally shutdown. A debate about the subsequent recovery and any ensuing reduction in help from central banks is forcing some to conclude yields have hit their lows.
Quantitative easing “might need to be upsized from here to prevent a rise in bond yields, especially if there is further fiscal stimulus or if our projections for private sector bond demand prove optimistic,” the JPMorgan group, including strategist Nikolaos Panigirtzoglou, wrote in a May 19 report.
Despite the huge surge in demand for bonds from central banks, JPMorgan expects that appetite to wane during this year for commercial banks, pensions funds and insurance companies, and foreign-exchange reserve managers.
The Federal Reserve, European Central Bank, Bank of Japan and the Bank of England will ensure demand expands by $4.2 trillion in 2020, though commercial lenders will see demand drop to the tune of $1 trillion, according to the report.
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