The idea for this chart came from work done by Nordea earlier this month and then was expanded on in a post this weekend. Over the past decade, periods of quantitative easing have generally coincided with rising Global Manufacturing PMIs and Treasury Yields, while periods of relative monetary tightening--as these programs have been suspended or (attempted to be) unwound--have seen growth and interest rates decline. With the Fed recently being forced to expand its balance sheet to offset unusually high Treasury issuance as the government's cash balance is rebuilt and the ECB to start buying bonds in November, bond markets may be underestimating the combined impact of this monetary policy accommodation on growth and Treasury yields.
There are myriad offsetting factors that could drive yields lower, but given market consensus appears tilted to the prospects of ever lower interest rates, we think investors should consider alternative scenarios.
The chart below can be downloaded here.
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