We often have discussions in the office that consist primarily of asking questions. Sometimes they are questions we don’t think people are asking enough, sometimes questions we are sick of hearing and most often questions which we can’t answer. Not questions that only we can’t answer but rather ones that no one can answer based on real facts. I find these discussions very helpful and thought it might be interesting to expand the conversation and include our readers. It’ll usually just be stream of consciousness on my part, whatever comes to mind, but sometimes we’ll try a theme. So, this is the first edition of what I hope becomes a regular feature called Questions.
Why did the US yield curve steepen after Draghi’s comments last week? Draghi said that ‘deflationary forces’ are being replaced by reflationary ones and bonds sold off worldwide. The yield curve in the US steepened along with those in Europe. The 10 year yield has risen 20 basis points in five trading days so nominal growth expectations rose after his comments. Real growth expectations rose too as TIPS sold off. So either investors believe that Draghi knows something they don’t or that ending QE – which is what this implies – is positive for growth. With central bankers’ credibility in the toilet I’m left wondering if all the world’s QE has actually been counterproductive.
This post was published at Wall Street Examiner on July 3, 2017.