•  Yields on long term bonds in many countries are now so low that the primary transmission mechanism for expanded quantitative easing is likely to be through exchange rate adjustment. Exchange rate tensions among countries will increase if market shares are materially affected by countries seeking lower exchange rates.
•  US dollar liquidity has tightened since the Federal Reserve completed its asset purchases and will continue to do so as US interest rates start to increase. A rerating of credit and liquidity risk is underway and lending spreads are likely to widen for countries and businesses with large international funding needs.