© Reuters. Goldman does not warn Central Bank QE enough for the avalanche of bonds
(Bloomberg) – In the epic battle between the trillions of dollars of debt needed to fund soaring government deficits and central bank bond purchases, the latter loses, according to Goldman Sachs Group Inc. (NYSE :).
That will lead to higher long-term borrowing costs, especially in the United States, the bank said as it investigated whether quantitative easing programs can buy enough government bonds to keep interest rates at bay.
“Delivery with greater durability increases the case for higher rates and steeper curves,” Avisha Thakkar, a Goldman strategist, wrote in a note to clients. “Central bank purchases should absorb a significant amount of upcoming issues, although we expect” free float “increases in most markets.”
Global central banks have so far managed to keep interest rates close to record lows as governments raise spending to unprecedented levels to soften the coronavirus damage. But investors are starting to worry that problems build further down the line if the stimulus is withdrawn or inflation accelerates.
New Zealand is slated to be the only developed country likely to see a dwindling pool of debt available to investors. In the UK, even an increase in the Bank of England’s bond buying program next month will not be enough to offset the extra supply, according to Goldman’s analysis.
It estimates that a 10 percentage point increase in the excess bond offer would involve between 10 basis points and 20 basis points to sharpen interest rates between 5 and 30 years in the United States. Treasuries.
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