How Interest Rates move during a Recovery

Looking at the historical trend of US 10-year bond during ages of recovery from recessions, we can understand how economic theory is quite far from reality, universities should “upgrade” their books

One of the many things that everyone learns studying Economics at University is the following rule: economic recoveries tend to start with rising interest rates.

This is wrong, and we can say it by observing the historical behaviour of the yield of 10-year bond during economic recoveries:

The right explanation is offered by Jan Loeys of JP Morgan’s global asset allocation team:

“Bonds tend to have a hard time selling off if central banks are not tightening, the steadily lower growth rates over the last 3 recoveries have induced steadily lower policy rates, which in turn have created faster and a greater number of asset bubbles that have been imploding before inflation has a chance to accelerate and central banks can move into a tight stance”