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The interest rate environment drives equity prices in ways both obvious and less so. This makes the stark divergence between U.S. bond yields and economic growth an extremely important trend for investors in all asset classes to follow.

The accompanying chart is a recreation of one presented by UBS research. Strategist Stephane Deo notes that under normal conditions, the "golden rule of economic literature" dictates that the yield on the 10-year Treasury bond track the year over year growth in nominal U.S. gross domestic product.

SOURCE: Scott Barlow/Bloomberg

But we do not have normal conditions now. The bond yield is threatening record lows while nominal GDP not only reflects a relatively healthy 4.3-per-cent growth rate, but is expected to improve significantly during 2015.

Unless we're in a "new paradigm" (yes, that's a joke), the lines on the chart should converge over time. The way this happens will have a huge effect on equity portfolios. There are two potential scenarios.

In scenario one, the nominal GDP growth will decline to match the bond yield.

This is, obviously, not great for investors as it would mean U.S. economic growth is slowing. Among other unpleasant effects, it would signal that Canadian companies that are expecting to increase exports southward will be disappointed.

Scenario two would see U.S. bond yields rise toward nominal GDP growth. This is the more positive outcome for markets. It would mean stocks exposed to economic growth – housing, retail, manufacturing, transportation and the like – would finally generate higher revenues. Profit growth would be achieved without the need for financial engineering strategies such as share buybacks and debt restructurings.

But a 10-year U.S. Treasury bond yield rising toward 4 per cent – and dragging domestic bond yields with it – would cause a big problem (that is, a sharp drop in asset prices) for investors in yield-bearing equity sectors such as REITs, utilities and telecoms. The higher government bond yields would draw investor assets toward bonds, and away from less-dependable dividend yields.

The second case is the more likely in my opinion because there are temporary, technical market factors helping bond yields lower. The inflow of foreign investment into the U.S. bond market, fleeing the declining euro, is one trend pushing rates down. The other, as illuminated by hedge fund manager and former Department of Treasury economist Mark Dow, is that the Federal Reserve's quantitative easing program has caused a scarcity of bonds for sale. This causes bidding wars for available bonds that drives the bond price higher and yields, which move in the opposite direction to price, lower.

No matter how it turns out, Canadian equity investors should pay close attention to this trend. Market history suggests we're about to see an environment of either higher interest rates or slower U.S. economic growth, and each requires a vastly different investment strategy.

Follow Scott Barlow on Twitter @SBarlow_ROB.