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“Sun Worldwide”, the Asian-based investment boutique broker, believes that the central banks of the developed economies are caught between a rock and a hard place as they try to sell unprecedented amounts of sovereign debt to finance their stimulus and bailout plans.
An anonymous “Sun Worldwide” source said that the firm believes the US Federal Reserve and the Bank of England are engaged in a game of brinksmanship with the markets because they need to monetize debt in a market that is slowly but surely demanding higher yields in order to compensate for the increased risk of default. In addition, figures emerging from both countries suggest that economic activity is gathering pace. This has prompted a rally in equities which is tempting investors to consider riskier assets instead of government treasuries.
“Sun Worldwide” analysts are thought to expect the forthcoming meeting of the FOMC (Federal Open Market Committee) to announce the extension of treasury buybacks (quantitative easing). The Bank of England surprised markets with a similar move which saw sterling punished on the foreign exchange markets.
Any such decision by the Fed would undoubtedly see the US dollar resume its downtrend despite its mild rally over recent days.
“Sun Worldwide” believes that the central banks are deliberately talking down the hopes of recovery so that investors maintain some modicum of interest in their sovereign debt.
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