There’s a risk of market turbulence, but it’s unlikely to hit until 2019, says Santander chairman

  • Central Banks' exit from bond markets could affect prices and yields after being heavily present in the market for a decade.
  • Ultimately, changes in bond prices and yields could have repercussions for all markets.
Traders work in the S&P 500 pit at the CME Group's Chicago Board of Trade in Chicago, Illinois, U.S., on Monday, Nov. 28, 2011.
Tim Boyle | Bloomberg | Getty Images
Traders work in the S&P 500 pit at the CME Group's Chicago Board of Trade in Chicago, Illinois, U.S., on Monday, Nov. 28, 2011.

Plans by central bankers to reduce monetary stimulus could create market shocks, but these are unlikely to happen in 2018, the chairman of Banco Santander told CNBC Wednesday.

As global growth picks up and inflation recovers from its crisis levels, the European Central Bank, the Bank of England and the U.S. Federal Reserve have started raising rates or reducing the amount of bonds purchased.

But their exit from bond markets could affect prices and yields after being heavily present in the market for a decade. Ultimately, changes in bond prices and yields could have repercussions for all markets.

"We have had 10 years of growth in the U.S., Spain has been growing already for four, five years, Latin America is a bit behind, so yes there's a chance that as we get out of QE (quantitative easing) there will be turbulence and that is something very difficult to predict," Ana Botin, chairman of Santander, said.

However, she added that such risk is more plausible to come in 2019 than in 2018.
"If you look at the 12 months ahead, we are already at the end of January so that (market turbulence) would be more for 2019," she said.

"As a retail commercial bank, we're very encouraged by what we see in the underlying economy, in the real economy — our customers want more loans, consumers have more confidence so market turbulence could happen, yes. That is one of the risks for this year, but I think that for us it looks like a pretty good year."

On Tuesday, the Dow saw the worst two-day drop since September 2016. The sell-off in equities was largely influenced by a spike in yields over the last few weeks, with investors concerned over the impact on corporate borrowing costs. Higher yields are traditionally seen as bad for equities as it reduces investor appetite for stocks and raises costs for companies.