Central banks’ unwinding will put more public debt in market hands

Amundi Asset Managers /

15-11-2023

Major central banks are reducing their large balance sheets. This will increase the supply of government debt that markets have to absorb, causing upward pressure on yields at a time where deficits are still high. The amount and speed at which central banks can offload their holdings critically depends on how much more debt governments issue. Additional public sector spending demands can complicate the tightening path. This higher supply of bonds should increase yields and raise the risk- adjusted required returns on other major asset classes. But it should be manageable if it’s done gradually and with due regard to market conditions.

Central Bank Policies