Yet it's not just prospects for a Japanese-style lost decade that are driving bond yields towards record lows. Anticipation of further QE – whereby central banks flood the economy with cash by buying up government debt – is creating a self-feeding spiral of ever-falling rates. This is an accident waiting to happen.
Yet policymakers seem determined to push ahead with QE2. On Wednesday, the US Federal Reserve is expected to sanction a further $500bn (£312bn) of bond purchases. And despite vocal objections from at least four members of the Open Markets Committee, Ben Bernanke, the chairman, has indicated a willingness to keep pumping money into the economy on a more or less indefinite basis until core inflation is unambiguously rising again and unemployment is falling.'
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