Report
Why is monetary policy uncertainty generating high volatility in share prices and not in long-term interest rates?
In the most recent period, uncertainty over monetary policy has become high, particularly in the United States. Quite naturally, this uncertainty (how much will the Federal Reserve tighten monetary policy?) has generated high volatility in equity markets. But volatility in long-term interest rates has remained low. How is this possible? What accounts for this volatility asymmetry between equities and long-term interest rates? Because investors believe that central banks want to avoid sharp movements in long-term interest rates, which would impede investment and lead to a fall in wealth; Similarly, because central banks (except in Japan or Switzerland) hold bonds and not equities; Because there is strong structural demand for bonds denominated in international reserve currencies, and also because of financial repression.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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