I posted on the RBA’s Guy Debelle’s comments on Tuesday and also this morning.
The head of the ASX has also weighed in:
Elmer Funke Kupper agrees there’s more risk of “violent selloff” in bond offshore markets… but the same could be said of high-yielding Australian bond and equities:
- “We’ve been in a long period of record low interest rates, a long period of quantitative easing and it acts like a drug in the financial system”
- “You get used to being on the drug and as people start to chase yield, they by definition go onto riskier assets. The combination of low interest rates and liquidity from quantitative easing makes that look attractive. So, the question is: what happens when that dries up and interest rates start to rise? My fear is that two things would happen. The first is that there will be a value correction, so as interest rates go up, those higher risk assets don’t look so attractive anymore, so their value starts falling. But at the same time, liquidity might dry up. So, what looks like a highly active market today might be much more difficult to trade at that point in time. The combination of values going down and liquidity going down can create a spiral and I think he (Guy Debelle) calls that a ‘violent correction’. I think there’s every chance that that might happen.”
