Central banks have been urged to wind back multitrillion-dollar stimulus measures as investors continue to fret over signs of tighter credit conditions in the world's two biggest economies.
After a huge build-up in central bank balance sheets in recent years, the Bank for International Settlements added to fears of a bond market rout on Monday, saying central banks' extraordinary policies promoting cheap credit had done enough to stabilise the global economy.
BIS general manager Jaime Caruana argued that central bank policies to buy government bonds in the US, Britain, Japan and Europe were starting to become less worthwhile and markets had become "overdependent" on stimulus. Central banks in these countries have slashed interest rates to near zero and expanded their balance sheets since the global financial crisis.
In the past six years, central bank balance sheets globally have risen from $US10.4 trillion in 2007 to $US20.5 trillion today.
"Half a decade ago, most, if not all, of these measures were unthinkable," Mr Caruana said. "Their emergence shows how much responsibility and burden central banks have taken on.
"Monetary policy has done its part. Recovery now calls for a different policy mix - with more emphasis on strengthening economic flexibility and dynamism and stabilising public finances."
The comments came as the yield on 10-year Australian government bonds hit a 15-month high above 4 per cent - reflecting lower investor demand for bonds globally. Bond prices and yields move inversely.
The spike in yields has occurred as investors grapple with the implications of the US Federal Reserve's signal last week that it planned to curb its $US85 billion-a-month bond-buying program.
Traders have also been rattled by a spike in Chinese interbank rates.
Nomura Australian interest rate strategist Martin Whetton said withdrawing stimulus too quickly threatened to derail the US recovery by pushing up bond yields and raising borrowing costs. US mortgage costs - which are set off bond markets - have already risen sharply in recent months.
"If you push borrowing rates up too much higher, then it's going to stall some of the recovery," he warned.