Since March 2020, the 10-year Government bond spread between the US and China has collapsed from 2.5% to zero today.
This spread underlines a wider theme of monetary policy divergence and relative value dispersion between developed and emerging markets.
In the developing world, above target inflation fuelled by higher commodity prices, is a key driver of interest rate hike expectations. Whereas in emerging markets, and particularly China, the issue is not necessarily inflation, but growth and currency depreciation.
The result? Divergent Central Bank policies that are creating medium-term relative value opportunities across asset classes, for investors that are prepared to accept short term volatility.