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Rising long end yields suggests switch from monetarism to fiscalism – ADMISI

2016-09-09 0 0 Vimeo

The yield curve, also known as the "term structure of interest rates”, shows the various yields that are currently being offered on bonds of different maturities. Reading the yield curve correctly is highly critical as central banks since 2009 have manipulated the yield curve via QE and other unconventional policy tools. No wonder, there has been a strong relation between falling yields and rising equities. Marc Ostwald, Strategist at ADM Investor Services International, says “the rise in the long duration bond yields has implications for pretty much every other asset”. Ostwald details the reasons behind the rise in the yields and says sustained rise could rattle market nerves. He also brings up the topic of Fed rate hike and adds Draghi’s reluctance to ease further and BOJ’s exhaustion suggests they might think of tapering …something the markets are not considering right now. Ostwald concludes the segment by stating the rise in the yields is due to central bank exhaustion and increased speculation that fiscalism* is coming soon Foot note - *Fiscalism - An economic theory of British economist, John Maynard Keynes that active government intervention is necessary to ensure economic growth and stability