28 June 2023
Global liquidity is expanding, benefiting stock markets but posing challenges for bond investors. Central banks are expected to resort to quantitative easing again. The US Fed’s balance sheet reduction has been ineffective, and unconventional policies are anticipated. Financial markets heavily rely on liquidity to refinance existing debts. Advanced economies face fiscal pressures, and the US government’s Treasury issuance requires increased Fed holdings. Limited alternatives to Fed QE exist, while geopolitical tensions may reduce foreign appetite for US debt. Higher interest rates aggravate fiscal deficits and debt problems. The future appears challenging with no easy solutions.