Where next for interest-rates and bond yields?

As we find ourselves in a phase where possible solutions to the Covid-19 pandemic are in the news, the economic consequences for 2021 are optimistic. For example, it looks as though it will mean the type of Lockdown the UK is experiencing will get less and less likely. That is a relief as the issue of the Lockdown strategy is that you end up in a repeating loop. The more hopeful reality does have potential consequences for interest-rates and some of this has been highlighted by Reuters.

LONDON (Reuters) – Expectations of interest rate cuts in some of the world’s biggest economies have melted within the space of a month on hopes a successful coronavirus vaccine will fuel a growth bounceback next year.

Why? Well in line with this from Bank of England Chief Economist Andy Haldane yesterday.

LONDON (Reuters) – Bank of England Chief Economist Andy Haldane said the economic outlook for 2021 was “materially brighter” than he had expected just a few weeks ago despite short-term uncertainty from a renewed COVID-19 lockdown in England.

Except as you can see the changes are in fact really rather minor in the broad scheme of things.

Between Nov. 5-9, a period when it became clear Democrat Joe Biden had won the U.S. election and Pfizer announced its vaccine news, eurodollar futures, which track short-term U.S. rate expectations, flipped to reflect expectations of 10 bps in rate hikes by Sept 2022.

Just the previous week, markets were predicting no changes. Futures now expect U.S. rates at 0.50% by September 2023, from 0.25% forecast a month previously.

At the ECB where rates are already minus 0.5%, a nine bps cut was expected by September 2021 but that is now slashed to only five bps.

After all the interest-rate cuts we see that the US is expected to increase interest-rates by a mere 0.25% over the next 3 years. That is a bit thin if you note the promises of economic recovery. But it is in line with one of my main themes which are that interest-rate cuts are for the now and are large whereas interest-rate rises are for some future date and are much smaller if they happen at all. For example Bank of England Governor Mark Carney provided Forward Guidance for interest-rate increases in the summer of 2013. It is hard not to laugh as I type that his next move was to cut them! There was a rise some 5 years or so later to above the original “emergency” level of 0.5% which rather contrasts with the cuts seen in March.

As to the ECB which hasn’t has any increases at all since 2011 there has been this today by its President Christine Lagarde.

While all options are on the table, the pandemic emergency purchase programme (PEPP) and our targeted longer-term refinancing operations (TLTROs) have proven their effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves.

So Definitely Maybe, although these days interest-rate cuts may not be widely announced as for example the present TLTROs allow banks access to funds at -1% as opposed to the more general -0.5% of the Deposit Rate.


I did point out earlier that interest-rate cuts are for the here and now and they seem to be rather en vogue this morning starting early in the Pacific region.

BI Board of Governors Meeting (RDG) in November 2020 decided to lower the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 bps to 3.75%, as well as the Deposit Facility and Lending Facility rates which fell by 25 bps, to 3.00% and 4.50%.

Bank Indonesia did not have to wait long for company as the central bank of the Philippines was in hot pursuit.

At its meeting on monetary policy today, the Monetary Board decided to cut the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 2.0 percent, effective Friday, 20 November 2020. The interest rates on the overnight deposit and lending facilities were likewise reduced to 1.5 percent and 2.5 percent, respectively.

Perhaps the Bank of  Russia fears missing out.

Russian Central Bank: Monetary Policy To Remain Accommodative In 2021…….Russian Central Bank: See Room For Further Rate Cuts But Not That Big.

Probably they are emboldened by the recent rise in the oil price which is a major issue for the Russian economy.


We looked at the Pacific region back in 2019 as an area especially affected by the “trade war” between the US and China. Some of that looks set to fade with the new US President but the Pacific now has another one.

China is digging in its heels as the trade spat between Canberra and Beijing continues, with officials laying responsibility for the tensions solely at Australia’s feet. ( ABC)

As well as the interest-rate cut Bank Indonesia is working to reduce bond yields.

As of 17 November 2020, Bank Indonesia has purchased SBN on the primary market through a market mechanism in accordance with the Joint Decree of the Minister of Finance and the Governor of Bank Indonesia dated April 16, 2020, amounting to IDR 72.49 trillion, including the main auction scheme, the Greenshoe Option (GSO) and Private Placement.

Primary purchases are unusual especially for an emerging market and another 385 trillion IDR have been bought via other forms of QE.


The central bank gives us a conventional explanation around inflation as a starter.

Latest baseline forecasts continue to indicate a benign inflation environment over the policy horizon, with inflation expectations remaining firmly anchored within the target range of 2-4 percent. Average inflation is seen to settle within the lower half of the target band for 2020 up to 2022, reflecting slower domestic economic activity, lower global crude oil prices, and the recent appreciation of the peso. The balance of risks to the inflation outlook also remains tilted toward the downside owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic.

But we all know that the main course is this.

Meanwhile, uncertainty remains elevated amid the resurgence of COVID-19 cases globally. However, the Monetary Board also observed that global economic prospects have moderated in recent weeks. At the same time, the Monetary Board noted that while domestic output contracted at a slower pace in the third quarter of 2020, muted business and household sentiment and the impact of recent natural calamities could pose strong headwinds to the recovery of the economy in the coming months.


As you can see the story about the end of interest-rate cuts has already hit trouble. Central bankers seem unable to break their addiction. I will have to do a proper count again but I am pretty sure we have now had around 780 interest-rate cuts in the credit crunch era. So it seems that the muzak played on the central bank loudspeakers will keep this particular status quo for a while yet.

Get down deeper and down
Down down deeper and down
Down down deeper and down
Get down deeper and down.

There are issues as I noted on the 11th of this month as all the fiscal stimuli puts upward pressure on interest-rates. But the threshold for interest-rate cuts is far lower than for rises. Also we get cuts at warp speed whereas rises have Chief Engineer Scott telling us that the engines “cannae take it”

Putting it another way we have another example of a bipolar world where there may be drivers for higher interest-rates but the central banksters much prefer to cut them.This gets more complex as we see so many countries with or near negative interest-rates and bond yields.

30 thoughts on “Where next for interest-rates and bond yields?

  1. Hi Shaun, I think this old monetary system has reached the “end of the line”. You pretty much point it out in every day’s analysis. We have descended to the bottom of the barrel and we all circle there, expecting something new to happen. The CB’s know that if they introduce negative rates to the consumer it is “gameover”, instant bank run. We are held in stasis, its called the interegnum.


    Watiing for the new CBDC arrangement to be unveiled over the Christmas break. That digital tie between citizens and their national bank will allow all manner of manipulation and repression. We should think to try and characterise those scenarios which are coming in the near future. Please apply your considerable nous, savvy and experience there.

    Kindest regards Paul C.

    • Hi therrawbuzzin

      We should have let more banks fail and protected the depositors. Instead we have protected bank management and directors ( as opposed to staff who have seen cuts).Also shareholders have seen lots of pain.

      Even worse the cure ( lower interest-rates) has ruined their business model.

  2. The recent news on numerous vaccines is indeed good news, but Australia has seen a new strain of coronavirus which is far more infectious that the present strain and no one knows at this stage how long the vaccine will work for.

    The markets have seen a considerable bounce back lately but the damage to the various economies will take some time to repair imo albeit it all depends how a change in working and new job creation pans out, these things could take quite some time.

    As for interest rates, unless a bounce back in the major economies comes soon in the next 6 months they are going nowhere imo, certainly not up.

    In fact with asset prices ballooning particularly property and I noticed the ONS mentioned the UK rise in property yesterday, there could be a major correction in the not too distant future. Many on here have been talking about this for a year or so now but it hasn’t happened.

    In fact property prices could continue to rise for a short while now while interest rates are low and stamp duty cut.

    The tipping point will probably be higher redundancies.

  3. I just cannot see interest rates going up, because:
    1. It will increase the cost of government debt
    2. There will be howls of pain from the holders of mortgages, especially if it knocks house prices
    3. There will be howls of pain from the private equity houses, as their investments cannot take the extra costs
    4. There is no link any more between the economic levers that we used to believe in, and, most of all
    5. Because the characters who run the CBs don’t want a crash on their watch…
    I have seen almost no one ask for higher interest rates across the political spectrum and I think that the example of Japan shows where we are heading, i.e. permanent low rates and, when even then, assets fall in price, you activate state acquisition of the stock market as a means of keeping the plates spinning.

    • James, your argument is completely valid in the “old world order” OWO. However in the NWO, the Govt Debt is jubilee’d and mortgage holders who can’t cope get jubilee’d. So yes we do get postive interest rates by the middle of next year. Allocation of capital returns to fruitful enterprise…. thank Gawd.

      • Sorry PaulC, Govt. Debt is to be paid for with higher cgt receipts & lvt. All mortgage holders, indeed all property holders will fail as the LVT will be greater than the UBI.
        Bank debt will be jubileed by neg interest rate policy on our digital currency.

        • Interesting… Well we agree that there will be a BoE CBDC. I don’t understand how a -ve IR policy will fix Bank debt, I am reading that -ve interest rates paid by banks to mortgage holders will be bad for banks. Maybe your suggestion is for the Central Bank but a dribble of -ve will take years whereas a Jubliee needs to be instant.

          I am thinking that outright property owners will be able to manage LVT from their disposable “earned” income, those folk will get a UBI stipend but not rely upon it to meet such obligations.

          • I don’t understand how a -ve IR policy will fix Bank debt,
            How much Govt money is in the hands of the banks at zero rate?
            If the purpose of LVT was just to tax, it would be affordable, but since it is for confiscatory purposes it will be unaffordable, obviously.

      • I’m no doubt very out of date, but what does jubileed mean.
        btw, don’t you think that all classical economics is out of the window? Which economist from pre-2000 would have thought that the current CB actions would have led to anything but disaster?

        • Its a “Jubilee” for debt forgiveness. People rejoice when their debts are written off. It happens a lot with the IMF and often with big business when they get close to bankruptsy. Doing it for the whole nation is less common but not without ancient precendent.

          However the NWO are only proposing incremental Jubliee and for the plebians as they fall into personal bankruptsy. Unwanted business categories will be allowed to go properly bankrupt, for example: Mass Travel, SME’s in Hospitality or farming.

        • “Which economist from pre-2000 would have thought that the current CB actions would have led to anything but disaster?”

          All of them.
          They are correct, it will lead to disaster.

  4. Hi Shaun, your blog is interesting & informative as always.
    One point about interest rate cuts: Kristalina Georgieva, at the IMF said, in her speech at Davos 2020, that the 71 interest rate cuts from 49 central banks (I think the numbers are correct) in 2019 WERE CO-ORDINATED!!!!! (“In a “SYNCHRONISED” manner.
    Since it is unlikely that this level of co-ordination was snatched from thin air, it is likely that this co-ordination has been in play for some time.
    This means one thing & one thing only; BoE was not acting independently for the good of the UK economy, but was acting at an international level, regardless of the consequences for the UK & its people.
    This is treason.

    • re “This is treason.”

      its not if HMG says its not , which is what they will say to secure board positions there and elsewhere.

      its a big club , and you and I aint in it.


  5. IMF warns warns the global economy losing momentum. Even if they start to roll out a vaccine Pfizer has already said we won’t see much benefit until late next year and in the meantime considerable damage will already have been considerable.

    Here in the UK both Jaeger and Peacocks the latest to go into administration.

    We need far more jobs than the green jobs the GOV has announced recent!y.

    • Hi Peter

      I think we knew about the economy from what was happening anyway. After all much of Europe is on Lockdown lite and I see that New York is closing schools. I cannot see how anyone can plan ahead right now.

      There was also the defence spending announcement in the UK. Although with other countries doing the same this looks like another echo of the 1930’s

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