Those multiples are unsustainable, not just
because central banks will be looking to wind-
down their balance sheets but governments are
also poised to increase spending and that
presents downside risk.
The proposed unfunded tax plan in the US
is an example, while the recent
UK budget included some loosening of the fiscal
In Germany, a new coalition could include
some fiscal spending.
To the extent that tapering will coincide with
a move towards increased government spending
globally, then the ratio of rolling central bank
asset purchases versus net issuance will surely
fall after peaking in 2017, affecting technicals for
Therefore, 2018 has the potential to be a
substantial reverse point in the supply/demand
dynamic. This is especially the case in Europe. As
the realisation mounts that ECB’s quantitative
easing withdrawal is much more signifcant in
relative terms to that seen in the US in 2014-15,
then fxed income markets could become more
vulnerable and volatility spikes should become a
much more common occurrence.