Global economic imbalances may lead to 'bond trap' for investors

US-led efforts to rebalance the global economy are in danger of foundering on Europe’s fiscal retrenchment drive. The result, warn economists, may be a global bond trap, whereby surplus liquidity is channelled into safe government debt, freezing investors out of the corporate bond market.

Caught in a trap: liquidity constraints may force investors into low-yielding Treasuries

During a press briefing in Toronto on June 25, US Treasury secretary Timothy Geithner paused to reflect on the causes of the financial crisis. “Over time, we’ll say the crisis was probably caused by the fact that the world got way out of balance,” he said.

The idea that imbalances in the global economy were contributory factors in the recent recession has been widely propounded. In a speech to the Council on Foreign Relations in March last year, chairman of the US Federal Reserve Ben Bernanke