As the Fed gradually scales back its unconventional monetary stimulus, we expect the dollar to rise against the other major developed currencies. We also expect government bond yields to increase. However, the US central bank is set to tread very carefully and we do not expect the federal funds rate to be raised until mid-2015. Against this backdrop, we forecast that the 10-year Treasury yield will only drift up to 3.5% by the end of next year. Finally, while we suspect investors’ appetite for “risky” assets will wane, we do not expect prices to fall back sharply given that monetary policy in the US and elsewhere is set to remain very accommodative.
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