Friday, September 16, 2016

Bond Yields Are Surging Despite Deflation:
That Is Dangerous
"The growth rate of nominal GDP in the U.S. has fallen to 2.4% the lowest level outside recession since the Second World War. It has been sliding relentlessly for almost two years, a warning signal that underlying deflationary forces may be tightening their grip on the U.S. economy. Given this extraordinary backdrop, the violent spike in U.S. and global bonds yields over the last few trading days is extremely odd. It is rare for AAA-rated safe-haven debt to fall out of favor at the same time as stock markets, and few explanations on offer make sense .. Bond yields in Europe are clearly not rising because growth is picking up and inflation looms .. In other words, yields are rising for the "wrong reason" .. We are entering dangerous waters. Markets are losing faith in the central bank 'put', but governments are not yet willing to step into the breach with fiscal stimulus to keep the global show on the road. This is how accidents happen."
- Ambrose Evans-Pritchard
LINK HERE to the essay

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