• The battle of the narratives. Consider the massacre in the Australian government bond market this morning when the RBA, perhaps unexpectedly, decided to no longer defend the 10bps target yield on the 2-year government bond. In the bloodbath that ensued, we clocked the increase in the 2-year yield at 32bps (it rose to 0.55, mind you). The 5-year yield shot up by 17bps while the 10y *only* rose by 6bps. Meanwhile in Japan, the Bank of Japan stuck to its guns and continued to forecast disinflation in the full forecast horizon when it published its interest rate decision this morning. That it is, core inflation of 1% by 2023. The RBA is clearly spooked by inflation, while the BOJ is facing the same old problem.[1] In the battle of the narratives, on which side is the ECB?

[1] Discerning readers might notice that the central banks of the current account deficit countries – US, UK, Australia, New Zealand – have a much bigger inflation problem than the central bank of the current account surplus countries.


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