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Fiscal Tightening And Yield Curves

GLOBAL

An excerpt from this month's MNI's Macro Deep Dive focusing on structural drivers from fiscal policy (full note here: https://marketnews.com/mni-macro-deep-dive-may-2022).


  • Fiscal policy is clearly just a single factor behind yield curves yet the countries that have the flattest curves also happen to be those expected to see the largest cumulative tightening over 2022 and 2023.
  • Tightening here is the annual change in the cyclically adjusted primary balance taken from the IMF's Fiscal Monitor published Apr-2022.
  • Of the G10, the UK and Australia could be more prone to further flattening.
  • That’s not to say the impact of tighter fiscal policy can’t be felt further on growth expectations though, with only the Czech curve already inverted and with scope for others to follow suit if recession fears do mount.


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