Given all the global central bank tightening, we’re publicly releasing our newly completed 80-page study pamphlet on yield curve control and its effects on global interest rates. The pamphlet includes slides and tables. We discuss why the 2-10 spread indicator is not sufficient for policymaking purposes, and we offer an alternative. The pamphlet covers the period that starts with Sweden’s first official foray into negative rates (2009), and it ends recently, at a time when nearly all the world’s central banks are in tightening mode (2022).
We explain market dynamics that create parallelism in term structures. Supporting statistics are in the tables.
We also introduce the tax-free municipal bond market in US as an additional comparison.
This publication captures years of ongoing research used in our analysis of interest rates and supports the theme that market agents can benefit from the diversity of central bank policy. Each central bank may think its policy is domestic-centric in focus. In fact, global market agents use that notion to their own advantage. The mechanism described exposes how central bank interest-rate policy transfers risk to the foreign exchange global currency markets.
We want to recognize Cumberland’s Shea Slawson for her help in maintaining the Bloomberg data base inputs you will find in the spreadsheets and computations. We thank Leo Chen for checking the mathematical use of Z scores. Tom Patterson helped assemble the pamphlet (my third). Tim Lyle proofed the compliance requirements. Norm Dempsey set up the website version. Charley and Elizabeth Sweet provided editorial surveillance for the narrative.
All errors are mine alone.
Here’s the link to the electronic version of “Yield Curve Control”: https://www.cumber.com/pdf/Commentary/Yield-Curve-Control-the-story-of-ZIRP-and-NIRP.pdf.
If you want a printed copy, please email me and wait patiently for a snail-mail reply, which can take a week or even two.
David R. Kotok
Chairman & Chief Investment Officer
Email | Bio
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
