M&G's Leaviss: How the guiding light of demographics went out for fixed income

For much of the 20th century, understanding the demographic changes in the Western world would have allowed you to predict government bond yields pretty accurately.

In the past few years, however, those old models have completely stopped working. So what is the relationship between demographics and bond yields, and why did it break down? The traditional models worked like this: knowing what population growth is likely to be allowed you to estimate an important input to an economy's trend gross domestic product (GDP) growth. Trend GDP growth is often calculated as the change in working-age population plus any change in productivity growth. This estimate of trend growth is itself an important input to making a judgement about the long-term real int...