Low bond yields are here to stay, even if fiscal stimulus returns

Central banks to keep borrowing costs low

Markets don’t always react in the way economics textbooks tell us they will.

Sometimes they respond counterintuitively, and we could be approaching one of those moments. According to conventional economic thinking, the prospect of fiscal stimulus should prompt sovereign bond prices to fall - and yields to rise - in anticipation of government balance sheets becoming stretched. But there are powerful structural and cyclical reasons why this may not be the case this time. We think low bond yields are here to stay, even if fiscal stimulus makes a return.  Since the Global Financial Crisis, policy makers across the world have embarked on an extraordinary mone...