Politics and Markets React to Rising Economic Growth

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The 10-Year U.S. Treasury yield has historically tracked closely to the change in nominal U.S. GDP.

The past week brought with it a few key political events worth mentioning:
• In Japan, Prime Minster Abe shocked the market by announcing he will dissolve the lower-house of parliament and called for a snap election on October 22nd, along with announcing an $18bn stimulus package.
• German elections saw Angela Merkel remain chancellor. However, at the same time, she ceded enough votes to the far-right Alternative for Germany party to give it seats in the lower house for the first time since 1953.
• In the U.S. the Administration renewed its push for tax-reform, with mentions of a corporate lower tax rate of 20%; pass-through tax rate of 25%; fewer individual tax brackets; and repatriation. Efforts to repeal Obamacare were extinguished.
Meanwhile, today bond yields are rising in concert with equity prices. Why not? It is what these markets both do on the prospect of higher economic growth due to tax cuts and Japanese stimulus. Please see page 33 of the Voya Global Perspectives™ Book: “Growth & Reflation”. - Special Guest Blogger: Pavel Dekhman

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