Q1 2023 Economic Commentary

Things break when you squeeze too hard

Following the volatile nature of markets over recent years, 2023 has started in a similar vein. With so many macro and micro factors driving markets in the short term it’s worth looking at the longer-term trends. In doing so we can try to understand why asset markets have been so febrile recently, the factors we need to place close attention to and why seemingly sensible business models are starting to break.
For the past four decades we have experienced declining interest rates. This can be seen in the US treasury market (below) where the US 2-year treasury yield interest rate cycle peak has been lower than the previous peak over the past 40 years. Each cycle trough was lower than the previous cycle. It was a trend. The chart also shows over the past 12 months bond yields have risen considerably in response to central bank actions in trying to fight off stubborn high inflation. There is going to be a new higher peak, therefore the long-term trend has broken. As Troy highlight, trends don’t last forever.


Markets are never constant; they change and evolve like the weather.
Trends can sustain for months and years, perhaps even a decade, but not forever.
Troy Asset Management, January 2023