from Zero Hedge
One of the key themes that have emerged in the past year is that, having loaded up their balance sheets with tens of trillions in various assets, central banks are “running out of road.” While it is a topic extensively discussed on these pages, going all the way back to 2014, a good summary of the practical limitations on central banks comes from the following series of charts from Deutsche Bank.
The first slide looks at the bond transmission mechanism, namely that central banks have become increasingly aware of the adverse impact of low bond yields on financial sector profitability; another aspect is that European pension liabilities as a % of market cap are at a 10-year high – and above the levels they reached in 2008, when the European market cap was at half the current level. This means that absent an independent rise in inflation expectations, central banks’ attempts to push up nominal bond yields (via less QE or faster hikes) risks leading to higher real bond yields as well; the implication is that equities tend to de-rate when real bond yields rise (i.e. the discount rate increases).