Bond Investors Expect Central Banks to Avoid Raising Rates, WSJ's Ip Tells CNBC
NEW YORK (TheStreet) -- Stocks continue to rally after recovering losses following the U.K. referendum to leave the European Union, but bond yields remain down.
Greg Ip, Chief Economics Commentator at The Wall Street Journal, believes that bond yields are expecting central banks to continue to avoid raising interest rates, regardless of the Brexit or strengthening yen in Japan.
"That's been a pretty good bet so far," Ip said on CNBC's "Closing Bell" on Thursday. "My concern is that what if central banks a few months from now decide that things post-Brexit really aren't that bad ... and they have to actually start normalizing interest rates a little bit faster?"
Bond investors are assuming that central banks will continue to act as if catastrophe is imminent, Ip says, regardless of if economic catastrophe should be expected. If central banks do try to play catch-up in this bond market, Ip says, "you're going to see a lot of blood on the floor."
The year 2013 is the last time Ip believes there were 10-year yields around the current global markets and there was a "premise in the market" that quantitative easing would continue forever. Ben Bernanke's "taper tantrum" comments that year caused a massive bond market sell-off, which Ip credits as "a kind of miscommunication" that may again be the case today.
"Perhaps the most key event in the last 24 hours is the Bank of England's decision today not to cut interest rates. They had all but promised rate cuts in the immediate aftermath of the Brexit vote," Ip added: "But the fact of the matter is, we have not seen any data yet that suggests there's been any collapse in growth."