Beware of New Normal

CIO letter» |

June 9, 2014

The big surprise for global investors so far in 2014 has been the performance of core government bonds. At the beginning of the year, most investors were bearish on US Treasuries and, to a lesser extent, on German Bunds. Today, there are many attempts to explain why the current low yields are fair. The Japanization of the developed world economy (persistent low growth and deflationary forces) is the concept behind this conviction. We see more and more signs that another “this time is different” story is taking shape in the market. We don’t share the consensus view: we still believe in the existence of short-term economic cycles  and in the reversion to mean of financial markets.

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