The sharp drop in yields on US government bonds seen last week is good news for stock investors, or so you would think given recent experience.
But that was not the feeling in markets on Thursday with a broad-based sell-off in equities, leading more people to start asking the key question of whether we could be having too much of a good thing — that is, interest rates that are artificially very low for too long. The question becomes even more important as investors get ready to digest this week news on inflation and US Federal Reserve policy.
Ten-year Treasury yields plummeted from around 1.70 per cent at the end of the first quarter to 1.25 per cent during Thursday’s trading session before recovering somewhat on Friday. Three main explanations have been suggested for this counter-intuitive move given higher growth and inflation outcomes.