From Morgan Stanley
Negative real yields: The continued rise of the gold/copper ratio is a disinflationary sign, supporting the message of increasingly inverted G10 sovereign yield curves suggesting that the demand and supply of capital has shifted, which indicates increasing recession risks. The US 10-year sovereign real yield (as provided by the inflation breakeven market) has tipped into the red, leaving within the G10 Italy as the only country printing positive real yields. With inflation-adjusted coupon income turning negative, investors consider the equity markets as the alternative. The spread between the US 30-year nominal bond yield and the S&P 500 dividend income has turned negative, which happened before in 2016 and 2008. In both cases, aggressive easing measures pushed bond yields up again relative to the dividend yield.
Hurdles for successful reflation are high and rising: This time, the hurdle for this to happen seems higher for three reasons. First, debt has increased, reducing the effectiveness of the monetary policy tool kit. Second, rates and yields dropping into negative territory have pushed non-US bank equity prices often below book value, reducing the scope for commercial banks to increase their balance sheets or the risk structure of their credit portfolios. Hence, the money multiplier declines while credit flows into ‘safe’ but low productive areas of the economy. Banks seem willing to fund low-yielding real estate but stay on the sidelines in meeting the funding demand from venture capitalists. Funds flow into sectors almost guaranteeing low productivity gains and, implicitly, low returns. Third, global trade is in retreat, breaking efficient global production chains, acting like a tax on the corporate sector. This is why this cycle is slowing down from the supply side.