Fixed interest investors should prepare for tough times ahead

In February, Federal Reserve chair Alan Greenspan referred to the low level of global long-term government bond yields as a "conundrum". Investors shrugged off his remarks and long bond yields fell even further over. Despite a sharp reversal since, long yields are little changed. The conundrum is due to global liquidity. With an excess of cash sloshing around the world, some found its way into bond markets, causing yields to drop to improbable levels. The recent reversal reflects an ebbing of the liquidity tide. A useful summary of liquidity is the gap between global money supply expan...