Fixed Income: Expect higher yields to remain sticky
Explore insights on global yield trends, inflation challenges, and central bank policies shaping the economic landscape in the US, UK, and Japan.
Expect higher yields to persist, with the new normal set between 4.25% and 5%. Despite expectations of lower oil prices, a sustained bond rally appears unlikely due to robust US nominal GDP growth projected at 5%-6% over the coming years.
The current re-pricing of yields is primarily influenced by real rates and rising inflation expectations, rather than fiscal concerns. This environment suggests that real yields will remain above 2% in the medium term, supported by anticipated productivity growth driven by AI advancements.
In the UK, market perceptions indicate a significant inflation challenge, necessitating tighter monetary policy. Political uncertainties further complicate the landscape, with expectations of modest rate hikes that may keep yields elevated for an extended period.
For Japan, the Bank of Japan’s cautious approach signals a slow path to normalisation, with only one rate hike expected this year. The potential for further yen weakening could prompt a reassessment of this stance.
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