The Future Costs of Current Suppression

Late investment cycle signs continue to accumulate, from bearishly flattening yield curves, through strong commodity markets to persistently positive economic data surprises. Weekly Global Liquidity data also reveal choppiness, as the chart below confirms, but with a trend towards weakness that has proved sufficient to pull down the liquidity-sensitive BES$ crypto basket (60% BTC$; 30% ETH$ and 10% SOL$). We explain this slide mostly through the crowding impact of a rapacious real economy, but there are also gathering signs that several central banks are starting curtail liquidity impulses.

This shift is being picked up by bond markets. Consider the mighty US Treasury 10-year benchmark yield. This looks set to break out from its recent chart pattern (orange line) driven by rising rate expectations and without the help of higher term premia (black line). Indeed, the flat-lining (to modest falls) in term premia point to investors’ growing appetite for ‘safety’.