According to TS Lombard Managing Director of Global Macro Dario Perkins, The current “secular stagnation” for bond yields offers close parallels to the long depression of the late 1800s,
Over the past year, there have been multiple U.S. two-year/10-year Treasury yield curve inversions and record low bond yields across Europe and beyond that move inversely to price.
The inverted yield curve represents a point on a chart that shows short-term U.S. investments. Treasury bonds pay more than long-term bonds, and the downturn is widely regarded as an ominous sign.
Perkins said Wednesday in a research note, Despite a recent sell-off for fixed income, which primarily reflects traders pricing out the immediate risk of a global recession, the experience of the past decade suggests yields are unlikely to rise materially without something “breaking” in global markets.
TS Lombard compared the current persistent low-rate equilibrium and market hysteresis with the historical database of the Bank of England to analyze past “secular real-rate depressions” and what event triggered their reversal.
“The answer, wars, epidemics, famines and more wars makes even the ‘Armageddonists’ look optimistic. But there is one episode in history, perhaps the period with the closest parallels to today’s situation, which offers a less pessimistic way out: the long depression of the late-1800s,”Perkins added.
The Long Depression started in 1873 with a financial crisis which facilitated two decades of dire unemployment, deflationary market conditions, declining middle-class wages, and a rise in populism combined with a backlash toward globalization.
Productivity resurged in the 1890s due to an acceleration of “technological diffusion,” Perkins stated. Adding that technology can offer a route out of the slump providing the gains extend beyond the behemoth companies. However, an acceleration of wages is also important.
“Populism played a role, especially as it led to the development of the welfare state and the organization of workers into trade unions,” Perkins noted.
“There was no Marxist revolution, but there was a powerful shift in income distribution due to concerns about ‘ socialism. ‘”
So while some investors were puzzled by the appeal of Modern Monetary Theory (MMT), Perkins said that “the left might actually have history on its side.”


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