At a time when inflation is impoverishing consumers, Central Banks have already changed course. After the optimistic predictions that the general price level would begin to decline, the policy makers of the monetary authorities admitted that inflation is not temporary and they began to use their tools more and more in order to achieve their statutory targets of around 2% inflation over a few years. From the generalized tightening of Central Bank policy, only two of them stick to the policy of negative interest rates, namely the Japanese and the Swiss, but these too, especially the latter, are expected to “give in” and follow their counterparts in the coming years months.
The tightening of the borrowing tap increases the risks of corporate bankruptcies and defaults on scheduled payments, especially for the weakest “links” of the business. At the micro-economic level, the price of the HYG index, which consists of “high-risk” dollar bonds, is under suffocating pressure (see chart).
Chart: Ominous messages sent by the international corporate bond market (Source: HYG index, iShares)