The recent decline in bond yields, with German and Japanese yields heading back into negative territory, suggests all is not well with global growth. Most if not all clients laugh at my predictions of negative US bonds and Fed Funds. But I’m used to it. Below are two charts of US and German yields from my Global Strategy Weekly dated Sept 2006. I noted then that that “In the same way that the technicals in the US are calling for a visitation to 2% for 10y yields – the bottom of the trading range, probably say by the end of 2008 (recession induced?) – the same simple technicals call for negative yields in the Eurozone by the end of this decade”. Ok, I was a bit early with the bund forecast but oh how they laughed!
“Had the Fed been using a 2% target based on the NY Fed Underlying Inflation Gauge, former chairs Janet Yellen and Ben Bernanke would have been compelled to raise interest rates much earlier than they did [and] we would not have entered this era of utter complacency where economies are less and less responsive to quantitative easing”