Possibility of economic recession triggered by financial market distortion and price corrections - Nomura

Takahide Kiuchi, Executive Economist at Nomura, explains that the global economy is off to a good start in 2018, with no lurking dangers evident in the more developed economies. That said, the next economic recession could be triggered by an autonomous adjustment of market prices, he further adds.

Key Quotes

“The timing of such a recession is hard to forecast. With bond market volatility in the US at a strikingly low level, bonds look like a potential core cause of future market distortions. The current situation is an offshoot of major central banks’ bond purchase programs, which have led to excessively low bond yields and reduced the market’s functionality.”

“With the US having already started to reduce its holdings of US Treasuries and Japan and Europe slowing the pace of their government bond purchases, the risk of a major decline in government bond liquidity and market turmoil caused by government policies has receded to some extent. However, the excessively low government bond yields and heightened liquidity risk caused by government bond purchases to date cannot be completely eliminated in the short term. Under such conditions, the risk of an autonomous market correction jolting the financial markets and triggering an economic recession will continue to linger.”