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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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May 21 2014

The Big Mystery

The slide in treasury yields has been the great “mystery” this year, confounding a consensus that had been convinced they would be well on their way up. After all, as Ken Rogoff described the prevailing view of the great and the good from Davos in January, “People are euphoric here, they think everything is going to be fantastic.”

Various explanations, ranging from the trite to the complicated, have been trotted out to rationalize the reality of falling rates. Some involve myriad overseas developments, while others stick to the all-purpose weather excuse, as if sophisticated fixed income analysts could be misled by such transient factors.

So what happened? An understanding of cyclical risk may hold the key to this apparent puzzle. In fact, ECRI’s cyclical framework suggests a compelling answer.

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