, Columnist
How to Explain the Divergence of Global Interest Rates
The big question is what happens when this system goes into reverse.
Alternate path.
Krisztian Bocsi/BloombergThis article is for subscribers only.
Global bond markets trade on variables such as currency valuations, global fund flows, inflation expectations and monetary policy that can determine the level of interest-rate differentials. Recently these differentials have widened dramatically, specifically in developed markets such as Japan, the U.K. and Germany, relative to the U.S.
There are multiple theories about why these differentials exist and how they may eventually narrow. Mainstream thinking holds that interest-rate differentials are caused when the Federal Reserve tightens policy as other central banks such as the Bank of Japan and the European Central Bank loosen. Yet here are however two underlying reasons for international interest-rate divergence.