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Updating Our Bond Outlook: Watching the Most Important Relationship in the Bond Market
The most important relationship in the bond market is the growth rate of nominal GDP relative to the current level of interest rates. We believe nominal GDP is poised to head higher as the “wealth effect” continues to act as a “tailwind” on the economy. This is a long term negative for interest rates. In the short term, however, extreme pessimism and seasonals suggest a rally.