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QE: It’s the monetary policy, stupid

Central bank risk, not political risk, should be bond investors’ primary focus.


Total assets held by the world’s major central banks stood at $18 trillion in April 2017.

This incredible figure includes the $4.9 trillion assets held by the People’s Bank of China. Aside from that, the Fed accounts for $4.43 trillion, the European Central Bank (ECB) $4.44 trillion and the Bank of Japan $4.52 trillion.

How this phenomenal volume of financial assets is eventually unwound is now perhaps the most important issue facing bond investors.

Indeed, while the markets wait for the first signs of a reduction in the Fed’s balance sheet next year, it is worth remembering that the US central bank now poised to exit quantitative easing (QE) actually has the smallest balance sheet of the lot.

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