Don’t blame QT for the bond backup (free to view)
- It is often said that QE held down bond yields, meaning QT should be a major contributor to this year’s rise
- But the evidence for this is deeply questionable
- QE does indeed hold down real yields, through a portfolio balance effect
- But it also pushes up inflation breakevens via signalling
- What is missing so far from this round of QT is the historical fall in breakevens
- The true driver of higher bond yields lies with inflation, not QT
