Graphic: Time to pump the brakes
Central banks' strategy of buying low-risk assets during the Great Recession suppressed interest rates to get investors and consumers alike back on their feet. Companies took advantage of lower rates to pursue capital projects while consumers could refinance their debts to free up more cash to spend elsewhere. As the banks plan to end asset purchases and allow a more natural progression of the economic cycle, anxieties exist over whether the world is ready for it.
A leg up: The Federal Reserve's program to buy mortgage-backed securities and Treasuries created artificial demand for these securities that, as intended, drove rates lower with the aim to spur growth and bolster inflation.
Fat and happy: The European Central Bank and Bank of Japan also bought large sums of low-risk assets. Resulting low yields drove investors further into risk assets, with valuations increasing in step with demand.
Uphill battle: Low borrowing costs worked as intended and companies increased capital spending. Despite a 35% increase since the end of 2007, private investments' share of total GDP is still below its pre-financial crisis levels.
*Yield to Worst. Sources: U.S. Bureau of Economic Analysis, Bloomberg LP, BNP Paribas
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