The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Bond Outlook by bridport & cie, November 3rd 2010

Constipation may better describe the situation of the US economy than champagne cascades, and the risk investors face is that relief may come in too big a dose!

Bond Outlook [by bridport & cie, November 3rd 2010]

The US economy is, for want of a better word, constipated. The image may not be as attractive as our previous champagne cascade metaphor, but it aptly describes how liquidity is stuck within banks and corporations, but is failing to trickle down further into the economy in the form of spending, investment and property purchases. With QE2, the Fed is forcing cash in at one end in the hope that it comes out at the other. This represents a double risk, in that the strategy may not work at all, or that it may work all too well. If the cash build-up floods into the economy at large, inflation will be let out of its cage, and the yield curve will steepen dramatically. The curve is already steepening as the Fed’s anchoring of the overnight rate, and its intervention at longer maturities, are no longer forcing yields down. As many commentators have observed, a Keynesian treatment was entirely appropriate in avoiding a depression in 2008, but is no longer the right approach to encourage stronger growth when a degree of stability has returned.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree