For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.
The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.
The rise in bond yields—especially sovereign bonds—does not mean that it’s a “risk on” environment, and that happy days are here again: It simply means investors are re-allocating their capital, and hedging against the possibility of a collapsing sovereign credit market.
It’s not quite a secret that the world’s governments are overindebted, and that the central banks of the world’s premier currencies have been printing their way into reigniting their local economies, creating a race to the bottom effect insofar as currency is concerned.
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