9 December 2021/No Comments
By Nick Dunbar

This century’s great experiment in central banking has met its biggest challenge: inflation.

Years after being written off as a historical relic, inflation has come back, reaching levels not seen for four decades. As our inflation tool shows, US inflation rises above 7 % when you replace the headline urban CPI with an alternative (tracked by Eurostat) that includes rural consumer prices as well.

But markets have not reacted as they would have done in the past. Bond yields are still well below pre-pandemic levels, and stock markets are close to record highs.

The elephant in the room is the $16 trillion of (mostly sovereign) debt that central banks now own, and are continuing to buy at the rate of billions per month. It was bought to help prevent deflation, not least during the pandemic when about a third of the current total was acquired.

The interactive chart below, adapted from our sovereign visualisation tool, shows the scale of these quantitative easing purchases both before and after the pandemic.

2019 2021
This visualisation shows the iBoxx sovereign bond universe for the largest economies together with the total central bank QE purchases for each country. Use the buttons at the top to change date. Each rectangle is sized according to notional amount of the respective issuer divided by GDP. The colour of each rectangle is determined by the price of all the country's bonds, with the lowest prices in red.
Click on the country headings to expand the view, and right click to return to the index overview.

Data source: Markit iBoxx

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