Is Quantitative Easing to Blame for Lower Yields?

Synopsis: Following the 2008 financial crisis, Central Banks around the world responded aggressively, cutting interest rates significantly (500 bps by the FED) and in some cases, into negative territory (-0.40% for the ECB). This loss-limiting response placed downward pressure on forward interest rates (Figure 1) and the yield curve (Figure 2). Nevertheless, Central Banks’ inflation targeting, anchored inflation expectations and continued demand for safe assets also explain the trend of falling forward rates and expected returns. Ten years after the financial crisis, quantitative easing (QE) has supported economic growth and stopped deflationary pressures that were a worrisome trend in most…...