Rather than tapping the beleaguered euro covered bond market for a second time this year, Canadian Imperial Bank of Commerce wisely chose to return to the dollar market this week, where it easily raised $2bn of five year funding at a cost that was lower — and in a larger size — than was possible in euros.
The transaction followed £1.55bn of supply across two five year deals from the same bank and Bank of Nova Scotia — again giving the issuers competitively priced funding in large size.
Ballooning issuance from the EU has put pressure on euro covered bonds, encouraging issuers that can to look elsewhere. The Canadians are leading the pack because their central bank has already withdrawn emergency liquidity. But where it goes others may follow.
On the face of it, global central banks believe rising inflation will be temporary. But the fact the Bank of England’s departing chief economist, Andy Haldane, warned this week that policy makers have become complacent suggests a growing prospect of dissent.
“There are few, if any, historical precedents to help judge the response of the economy to this scale of shock and degree of policy stimulus,” said Haldane, who warned that the costs of getting monetary policy judgement wrong could be high.
Global markets are entering a new era which means the past 30 years of low inflation bears little relevance. Apart from the inflationary impact of an extraordinary multi-fold expansion of central bank balance sheets, economies are facing unprecedented supply chain disruption, not to mention the impact of rising trade barriers with China.
The rising spectre of inflation will surely cause an unnerving central bank response. And if the central bank crutch is knocked away, the winners left standing will be those that had the sense to seek a diverse base of investors.