The spigot of global reserve stimulus is slowing to a trickle. The world’s central banks have cut their purchases of foreign bonds by two-thirds since late last year. China has cut by three-quarters.
These purchases have been a powerful form of global quantitative easing over the past 15 years, driven by the commodity bloc and the rising powers of Asia.
They have fed demand for US Treasuries, Bunds and Gilts, as well as French, Dutch, Japanese, Canadian and Australian bonds and parastatal debt, displacing the better part of $12 trillion into everything else in a universal search for yield. Any reversal would threaten to squeeze money back out again.
Jens Nordvig, from Nomura, said net foreign reserve accumulation by central banks fell to $63bn in the second quarter of this year, from $89bn in the first quarter, and $181bn in the fourth quarter of 2013. These data are adjusted for currency swings, and are fresher than the delayed figures published by the International Monetary Fund.
“There are major shifts going on global capital markets. People have been lulled into a false sense of security by low volatility and they haven’t paid attention. We’re not seeing any risk aversion in financial markets,” he said.
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