Bond yields to climb ‘for the wrong reasons’ next year

[Darghi]

LONDON — Government bond yields are likely to rise in 2023 “for the wrong reasons,” according to Peter Toogood, chief investment officer at Embark Group, as central banks step up efforts to reduce their balance sheets.

Central banks around the world have shifted over the past year from quantitative easing — which sees them buy bonds to drive up prices and keep yields low, in theory reducing borrowing costs and supporting spending in the economy — to quantitative tightening, including the sale of assets to have the opposite effect and, most importantly, rein in inflation. Bond yields move inversely to prices.

Much of the movement in both stock and bond markets over recent months has centered around investors’ hopes, or lack thereof, for a so-called “pivot” from the U.S. Federal Reserve and other central banks away from aggressive monetary policy tightening and interest rate hikes.

Markets have enjoyed brief rallies over the past few weeks on data indicating that inflation may have peaked across many major economies.

“The inflation data is great, my main concern next year remains the same. I still think bond yields will shift higher for the wrong reasons ... I still think September this year was a nice warning about what can come if governments carry on spending,” Toogood told CNBC’s “Squawk Box Europe” on Thursday.