During the pandemic, central banks in both advanced and emerging market economies took unprecedented measures to ease financial conditions and support the economic recovery, including interest-rate cuts and asset purchases.

With inflation at multi-decade highs in many countries and pressures broadening beyond food and energy prices, policymakers have pivoted toward tighter policies. The monetary policy cycle is now increasingly synchronized around the world.

More importantly, the pace of tightening is accelerating in several countries, particularly in advanced economies, in terms of both frequency and magnitude of rate hikes. Some central banks have begun to reduce the size of their balance sheets, moving further toward the normalization of the policy.

With risks to the inflation outlook tilted to the upside, central banks must do everything needed to prevent inflationary pressures from becoming entrenched. They need to act resolutely to bring inflation back to their target, avoiding a de-anchoring of inflation expectations that would damage the credibility built over the past decades.

Asia is standing out amid a global bond bear market, as the recent Chinese stimulus underscores the appeal of such steps in a world where most central banks are dismantling economic support in a battle against inflation. China’s high-yield dollar bonds have rallied to deliver their best returns in 10 years after authorities stepped up help for the crisis-hit property sector. The notes, dominated by real estate firms, returned 6.8% in August, the best month since February 2012.

The country’s sovereign bonds also gained, putting them among the top in global performance rankings as rate cuts reinforced China’s monetary policy divergence with most of the world.

The China boost helped Asian investment-grade dollar bond spreads narrow the most in August since 2020, driving them tighter than those of US peers, something that’s happened only a few times in the last decade.

Asia’s appeal is all the more salient after the Bloomberg Global Aggregate Total Return Index of government and investment-grade corporate bonds fell more than 20% below its 2021 peak, the biggest drawdown since its 1990 inception.

Hawkish comments from the Federal Reserve pushed out US spreads and prompted junk note outflows there. The Fed is trying to use higher interest rates to bring down sky-high inflation and now seems to be aiming for something known by the paradoxical name of a “growth recession.”