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According to Greg Gibbs, analyst at Amplifying Global FX Capital, bond yields have fallen abruptly further in the last week and appear to be flashing warnings over the state of the global economy.

Key Quotes

“Lower yields to some extent reflect a shift in policy guidance by the Fed and several other central banks over recent months, and the Fed’s announcement that it is slowing and ending its quantitative tightening.”

“At some point the divergence between falling yields, and rising equities and commodities is incongruous. Lower yields indicate an increased risk of falling global growth and inflation while rising equity and commodity prices indicate rising confidence in the global economy.”

“Economic reports this week, including weak Asian export growth and weak major economy PMI export components in March, are a reason for the market to become more anxious over the outlook for global economic growth.”

“Economic reports suggest that there is little sign of a quick recovery developing, and progress on trade negotiations and Brexit have slowed. It is still possible that later in the year, we do see economic reports and market confidence recover; especially if the US and China announce a trade agreement and unwind tariffs, but the market is beginning to fret that ongoing weakness in economic data reveal deeper problems and any recovery will be muted and slow to develop.”

“The market has been waiting for a stabilisation in the European economic slowdown for over a year, and yet it has only deepened. Its willingness to keep projecting a recovery appears to be fading.”