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🇬🇷 Greece /Economy & Trade

Scope: How to Tell When a Bond Selloff Becomes a Crisis

From Kathimerini · () Greek

Translated from Greek and summarized by DistantNews. Read the original for the full story.

At a glance

Analysis Named sources Context piece
  • Scope Ratings analyst Eiko Sievert said central-bank action would provide the clearest sign that turbulence in bond markets had become a crisis.
  • Government bond yields rose last week to their highest level since 2008, but Sievert described current market conditions as benign, though worrying.
  • He said use of the European Central Bank’s Transmission Protection Instrument, or intervention by the Federal Reserve, would signal a more serious escalation.

Investors will know with certainty that the bond market is in crisis when central banks step in, according to Scope Ratings analyst Eiko Sievert. For Sievert, the key warning sign is when monetary authorities can no longer avoid responding to market turmoil.

Everyone has their own definition.

· Eiko Sievert, Scope Ratings analystSievert explained that his definition of a bond-market crisis comes from his financial-stability background.

“Everyone has their own definition,” said Sievert, Scope’s lead analyst for US government bonds and a former official at the UK Financial Conduct Authority and the European Central Bank. “I come from a financial stability background, so that’s where my view of crisis comes from.”

By that measure, current market conditions remain benign, although worrying. Government bond yields rose last week to their highest level since 2008, the year of the global financial crisis. A central-bank “firefighting” intervention, or even the threat of one, has long been part of Europe’s toolkit during periods of market stress.

I come from a financial stability background, so that’s where my view of crisis comes from.

· Eiko Sievert, Scope Ratings analystHe linked his assessment of current market conditions to his professional focus on financial stability.

The euro zone’s latest bond-buying instrument, the Transmission Protection Instrument, was introduced in 2022 to allow officials to raise interest rates while limiting market disruption. The Bank of England’s temporary bond purchases also proved decisive during the UK’s fiscal crisis that year. “If the ECB felt the need to use the TPI tool, I think that would be a sign,” Sievert said. “You always run the risk that this escalates beyond what the fundamentals justify and then affects the fundamentals. So, these kinds of selloff dynamics, anything moving in that direction, I would call a crisis.”

If the ECB felt the need to use the TPI tool, I think that would be a sign.

· Eiko Sievert, Scope Ratings analystHe identified use of the European Central Bank’s bond-protection instrument as a possible crisis signal.

The Federal Reserve has no equivalent tool, so Sievert said a sustained loss of confidence in the dollar as a reserve currency could be a crisis indicator in the United States. Even there, he added, “Fed intervention” would be a clear sign. Officials worldwide are watching the situation nervously. Bank of England Chief Economist Huw Pill said on Friday that the greatest threat to central-bank independence comes from governments pressuring them to finance huge fiscal deficits.

You always run the risk that this escalates beyond what the fundamentals justify and then affects the fundamentals. So, these kinds of selloff dynamics, anything moving in that direction, I would call a crisis.

· Eiko Sievert, Scope Ratings analystHe described how a bond selloff could intensify beyond what economic fundamentals support and then damage those fundamentals.
About this summary

Originally published by Kathimerini in Greek. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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