The Most Interesting Chart in the World?

The Most Interesting Chart in the World?  

 

 

The underlying World economic backdrop is not as bad as it initially appears from a ‘normal’ assessment of financial market indicators. The inverted US yield curve and skidding inflation-adjusted interest rates (TIPS) are largely liquidity phenomena that are distorting markets through unusually depressed term premia. There is a shortage of ‘safe’ assets in global financial markets caused by fiscal austerity policies, compounded ironically by Central Bank quantitative policies and worsened by flight capital from Emerging Markets. These forces have triggered an excess demand for ‘safe’ assets which has driven up US Treasury prices and, simultaneously, hammered down term premia. Assuming that the recent Global Liquidity upturn continues, this may be enough to reverse the downtrend in term premia and normalise market.