We think equilibrium real policy rates in advanced economies will continue to rise over the next decade or so. That has profound implications for government bond yields and risky asset valuations. Discussions of ‘higher for longer’ generally relate to the …
17th October 2023
Market jitters around the war between Hamas and Israel appear to have stabilised today. But given that the uncertainty on that front is unlikely to fade entirely any time soon, it is worth taking stock of the warning signs evident in commodity markets. …
16th October 2023
We don’t expect a rise in earnings expectations to give the S&P 500 much of a near-term boost, but think the picture is more positive further ahead. Although US earnings season is getting under way, corporate profits probably haven’t always been front of …
13th October 2023
We still think the Fed and investors are too pessimistic about inflation in the US returning to target. We expect a continued fall in both core and headline inflation to push down US Treasury yields over at least the next year or so. CPI data out of the …
12th October 2023
The fall in Treasury yields since last Friday has pushed corporate bond yields down and equities up in the US. But while we think that Treasuries will keep rallying, we suspect that corporate bonds and equities will fare quite poorly in the near term. …
11th October 2023
We expect a continued paring back of US interest rate expectations to keep pushing long-dated Treasury yields down in coming quarters. But higher term premia may limit those falls in yields. Moves in long-dated Treasury yields have been mixed so far …
10th October 2023
The latest war between Hamas and Israel comes at a tricky juncture for global markets, and could easily increase volatility further. At this point, we think there are three key considerations around the potential market fallout. First, major financial …
9th October 2023
The US stock market has rallied so far today and is on track to bring to an end a spell of weekly losses. Although we think that the proximate cause of this recent weakness – rising bond yields – has largely run its course, we don’t expect the fortunes of …
6th October 2023
A laundry list of explanations has been provided for the surge in the term premia of Treasuries since mid-year, which has accounted for more than ~100bp rise in the 10-year yield based on the ACM model estimate. (See Chart 1.) One explanation that doesn’t …
5th October 2023
While government bond yields have stabilised today, their sharp rises over recent weeks are increasingly concerning. We think there are four key observations to make at this point. First, long-term yields have been rising steadily since mid-July, but have …
4th October 2023
We think that the yields of Australian long-term sovereign bonds will fall by a bit less than those of US Treasuries over the next couple of years, even though they’ve moved in lockstep lately. But the picture looks a bit different, to us, in other …
3rd October 2023
The higher-for-longer narrative took hold over the third quarter, pushing bonds and equities down in most markets. But we doubt that this narrative will last. We expect bond markets to rebound as inflation falls more quickly than widely anticipated. And …
2nd October 2023
While concerns about euro-zone public finances put upward pressure on bond yields there, the outlook for inflation will probably remain the focus for investors . In our view, that means bond yields in the euro-zone will fall by end-2024, but by much less …
29th September 2023
We think the “tech”-heavy sectors of the stock market, which have largely shrugged off the rout in Treasuries, will generally continue to do well. The Treasury market sell-off has continued in earnest this week. The 10-year Treasury and TIPS yields have …
28th September 2023
10Y Treasuries have underperformed 2Y Treasuries over recent months, bucking the usual pattern after the final Fed hike (if, as we think, the final hike was in July). But we think the stage is now set for 10Y Treasuries to outperform over the next year or …
27th September 2023
We think that investors’ enthusiasm for artificial intelligence (AI) will grow again next year and inflate a bubble in stock markets. This is just one of the many consequences that AI will have on the economy, in our view, as we discuss at length in our …
26th September 2023
Another set of downbeat business surveys out of the euro-zone and an increasingly cautious tone from ECB officials have put the EUR/USD rate under renewed pressure. But more broadly market participants do not appear particularly downbeat on the prospects …
25th September 2023
With the Bank of Japan offering little new at its policy meeting earlier today and US Treasury yields surging higher in the wake of the FOMC’s hawkish message earlier in the week, pressure on the yen has ratcheted up further. Unless US policy changes …
22nd September 2023
Despite the hawkish rhetoric from central bankers on both sides of the Atlantic, we still expect most long-dated government bond yields in developed markets (DM) to fall over the next couple of years. After a surprisingly hawkish message from the FOMC …
21st September 2023
We remain of the view that investors are overestimating how high the federal funds rate will be over the next couple of years, and that Treasury yields will fall as a result. A lot of discussion around the upcoming FOMC decision has focused on the path …
20th September 2023
The recent rally in oil prices has had only a limited impact on bond and equity markets so far. And we doubt that this will change anytime soon, given our view that the rally will not last much longer and that other factors will continue to play a bigger …
19th September 2023
The latest increase in the 10-year TIPS yield, to a post-Global - Financial-Crisis high of ~2% at one point last week, has barely caused a ripple in the markets. More generally, the influence of “safe” US real government bond yields on other assets has …
18th September 2023
We expect China’s equities to fare better than those in the US in the near term. Stronger-than-expected August activity data out of China seem to have given the country’s equities a bit of a boost today. But the gains haven’t been particularly broad …
15th September 2023
We think that the ECB is more likely than the Fed to keep rates “higher for longer”, even as the euro-zone heads for a recession. That is one reason why we expect core euro-zone bond yields to fall by less than Treasury yields over the next year or so, …
14th September 2023
Although today’s August CPI report was broadly in line with expectations, it provided further evidence that underlying inflation in the US is coming down even as the economy there weathers the Fed’s prior increases in interest rates very well. If that …
13th September 2023
Our view on UK inflation vis-à-vis the US suggest s that bond yields are set to fall back by more in the former , adding downward pressure on sterling. Today’s mixed UK Labour market data prompted only modest falls in Gilt yields and sterling, as it …
12th September 2023
Another step up in the Chinese and Japanese authorities’ efforts to prop up their faltering currencies has given the renminbi and the yen a bit of a boost today. Alone, these measures are unlikely to prove the start of a lasting turnaround: we continue to …
11th September 2023
Although upward pressure on the 10-year Treasury yield has abated a bit, the big picture is that it has risen by ~80bp on net in the past four months. While some of this rise has reflected a reassessment in the market of how quickly the Fed will cut rates …
8th September 2023
Emerging market (EM) easing cycles are underway in earnest even as the first Fed cut remains a while away. We think this easing will help to drive EM local-currency (LC) government bond yields lower, in general, over the rest of 2023. But we still expect …
7th September 2023
The worsening economic growth backdrop suggests to us that interest rate expectations for cyclically sensitive developed market (DM) economies are too high. We expect them to fall and drag bond yields sharply lower over the next couple of years. Earlier …
6th September 2023
We doubt the strong gains in Japan’s equity market this year mark the start of a significant reversal of its decades-long underperformance; we expect it to lag the US market over the next couple of years, both in local-currency (LC) and US$ terms. Today’s …
5th September 2023
New measures to support China’s struggling property sector seem to have sparked some renewed optimism in the country’s financial markets. We think there are three points to note. First, despite the rally, investors still seem quite downbeat on China. The …
4th September 2023
Despite today’s rebound, the general fall in Treasury yields over the past week against a backdrop of mixed economic data suggests investors could be starting to come round to our view that price pressures will continue to ease almost irrespective of how …
1st September 2023
We think China’s AI-related stocks may outperform their US counterparts over the rest of this year. But their longer-term prospects look less upbeat, to us. AI-related stocks in China were boosted overnight after a number of China-based firms launched …
31st August 2023
Stronger-than-expected inflation data from Germany and Spain today add to the uncertainty surrounding the near-term path of ECB policy. On balance, we think that the ECB will raise rates once more in this cycle and that government bond yields will fall by …
30th August 2023
We expect the gap between high yield (HY) credit spreads in the euro-zone and the US to narrow over the rest of this year as spreads in both economies climb. The option-adjusted spreads (OAS) of HY corporate bonds in the euro-zone have climbed to their …
29th August 2023
Market participants have taken Fed Chair Powell’s much-anticipated keynote speech at the Jackson Hole conference today as somewhat hawkish, even if the fallout, so far, is some way from the violent market moves which followed his remarks at last year’s …
25th August 2023
Stronger-than-expected Q2 earnings from Nvidia have extended this week’s relief rally in stock markets. While we think that US equities could falter over the rest of the year as growth disappoints, we suspect that AI enthusiasm will trigger an even …
24th August 2023
The weaker-than-expected PMI data from European economies is consistent with our view that the euro and sterling will fall further against the dollar over the next couple of months. Earlier today, PMI data for August out of the euro-zone and UK came in …
23rd August 2023
Although the 10-year JGB yield has gradually been creeping up towards the new 1% ceiling tolerated by the BoJ, this is no surprise given a broad-based rise in 10-year sovereign yields elsewhere. Indeed, if it weren’t for the BoJ’s ongoing Yield Curve …
22nd August 2023
We think global credit spreads will rise further by end-2023 in the face of disappointing growth. Having generally fallen since mid-March, credit spreads have been on the rise recently. Over the past week, for example, both the option-adjusted spread …
21st August 2023
Although the US stock market has started to come under pressure from rising Treasury yields, the valuation of equities relative to government bonds is still a long way from being as stretched as it was before the dot com bubble burst and on the eve of the …
18th August 2023
The continued rise in Treasury yields, following what may well have been the Fed’s final interest rate hike last month, contrasts with the experience of recent tightening cycles. But we still expect falling inflation between now and the end of the year to …
17th August 2023
Although disinflation in the UK is lagging that in the US, we expect yields in both places to fall this year. And we think that Gilt yields are set to fall by a bit more than Treasury yields through 2024 and 2025. UK CPI data for July, released this …
16th August 2023
The difficulties facing China’s economy and financial system continue to dominate much of the headlines. So far, the gloom has not made a major dent in the optimism reflected in global markets, although that could yet change. Another round of …
15th August 2023
We don’t think the ongoing troubles in China’s property sector mark the beginnings of a financial crisis, but do expect them to be a drag on returns from the country’s stock market over time. News that Country Garden – a large Chinese property developer – …
14th August 2023
With more poor economic data out of China and US yields again threatening to push towards new highs, it is little wonder that the yen and the renminbi have come under renewed pressure. While we still think both currencies will rebound later this year, our …
11th August 2023
We think disinflationary pressures will help the Fed pivot to rate cuts sooner than investors expect, giving a boost to “safe” assets this year and next. US CPI data for July, published today, was largely in line with consensus expectations. (See here .) …
10th August 2023
Despite oil prices hitting new year-to-date highs, other factors seem to be dominating the effect of rising oil prices on equity, bond, and FX markets. Even if, as we expect, oil prices edge lower over the next couple of years, we think the link between …
9th August 2023
The share prices of US banks have recovered some ground since a low point in May, as concerns about further failures in the industry have abated; Treasury yields have rebounded; and the economy has remained resilient. Even so, we’re sceptical banks will …
8th August 2023
