The sharp swoon in U.S. Treasury yields this month may not point to a looming economic slowdown after all.
Market participants have complained that the speed of the bond market’s rally this month appeared overdone given the resilience of the U.S. economy. Recent data including strong retail sales and continued growth in jobs underscore the strength of U.S. households that have weathered the worsening global economic growth trajectory.
Worries that the bond market was portending an economic downturn sparked the biggest one-day slump for the Dow Jones Industrial Average DJIA, -2.37% this year on Aug. 14.But Kolanovic says the value of long-term bond yields as an economic signal has been somewhat distorted by technical drivers such as so-called convexity hedging, a powerful driver of the bond market’s rally this year.
The FED is eventually going to have to cut rates and QE. They're holding off as long as they can. At 2% as the 'new' normal they've got even smaller margins than in 08.
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