Bond markets pointing to slowdown of US economic recovery – MENAFN.COM

Bond markets pointing to slowdown of US economic recovery – MENAFN.COM

Doha: The Great Pandemic Reflation (2020-21), a stimulus-induced recovery that brought the US economy back to life from the depths of a sharp downturn, will likely go down in history as one of the most dramatic macroeconomic events on record. After the US nominal GDP collapsed by more than 33 percent annualized in Q2 2020, it rebounded strongly, printing annualized nominal growth rates of 38 percent, 6 percent and 11 percent in the three following quarters to Q1 this year. In the process, US markets enjoyed extraordinary rallies, with equity indices staging strong performances and cyclical commodities paring previous losses or even making new highs. Importantly, macro-sensitive bond markets confirmed the positive backdrop. In fact, from August 2020 to March 2021, bond yields pointed to continuous tailwinds for the US economy. The benchmark spread between 10-year and 2-year Treasuries widened, producing a healthy steepening of the yield curve. This was a positive sign for the economic expansion as lower yields at the short-end of the curve implied monetary stimulus and higher yields at the longer-end of the curve implied stronger growth or inflation expectations. Moreover, the price ratio between high-yield corporate bonds and US Treasury bonds increased, suggesting elevated risk