Authored by Mohamed El-Erian via Bloomberg.com,
Over the past few months, government bond yields have fallen, the dollar has weakened and financials have underperformed, yet the major stock indexes are at or very near record highs, as persistently supportive liquidity conditions have more than compensated for policy and growth disappointments.
By boosting returns and repressing volatility, ample liquidity is a gift for investors. It makes the investment journey pleasing, comfortable and lengthy. But it is not a destination.
With the exception of buoyant stocks market indexes, it is hard to find many financial markets that have managed to retain their post-U. S. election mood. Specifically:
After climbing to 2.60 percent, the yield on 10-year Treasuries has fallen to below 2.30 percent. The yield differential between U. S. Treasuries and German Bunds has narrowed from more than 220 basis points to just 170 basis points. The widely followed DXY dollar index, which reached a high of 103 on Dec. 28, has depreciated sharply to 94, a level not seen since August of last year. The Mexican peso has appreciated to its strongest level in a year, after falling sharply on fears of U. S. protectionism.
This post was published at Zero Hedge on Jul 21, 2017.
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