The link between global liquidity and long-term interest rates

A few years ago, some investors were concerned that the coming stabilisation or even decline in global liquidity would lead to a rise in long-term interest rates, which is dangerous for global growth and for financial markets. It was nothing of the sort. We therefore want to look at the link between global liquidity and long-term interest rates. A statistical analysis shows that long-term interest rates depend on: The stock of global liquidity, and no t on flow s of new liquidity, which explains the fact that long-term interest rates have not risen ; Central bank key interest rates and, very slightly, expected inflation. The fact that it is the level of global liquidity and not its variation that determines interest rates is the key explanation why interest rates remain low.