Correlation between nominal bond returns and growth I read the following passage and the bolded section has me confused:  


  In theory, assets earn a low (or negative) risk
  premium if they tend to perform well when the economy is weak. When growth
  and inflation are primarily driven by aggregate demand, nominal bond returns
  tend to be negatively correlated with growth and a relatively low term premium
  is warranted. Conversely, when growth and inflation are primarily driven by
  aggregate supply, nominal bond returns tend to be positively correlated with
  growth, necessitating a higher term premium.


I thought that growth and nominal bond returns were usually negatively correlated. Why would the growth being supply or demand-driven affect this correlation?

Thank you for any and all answers!
When growth and inflation are primarily driven by aggregate demand, nominal bond returns tend to be negatively correlated with growth


Actually, the above sentence is the explicited version of what you have in mind, i.e. the links between nominal (vs real) returns, (demand-driven) inflation and growth.


  when growth and inflation are primarily driven by aggregate supply, nominal bond returns tend to be positively correlated with growth.


The point is that "supply-driven inflation" is the broad way of saying "weak or no inflation" or even "deflation" (avoided since politically undesirable). Put differently, when growth and inflation are primarily driven by aggregate supply, nominal bond returns tend to be ... real and thus to be positively correlated with growth. Indeed, the traditional (neoclassical) explanation is that non-weak real rates stimulate savings which in turn stimulates technical progress and ultimately, economic growth.


All that being said, the passage you quote is curiously phrased.. and the key words appear to be "tend to be".