We don’t expect the rally in bond markets to continue

While long-dated government bond yields have plummeted in recent months, we suspect that high inflation and the prospect of tighter monetary policy will see them turn a corner before long. We forecast long-term yields to rise across most major economies, especially in the US, where inflationary pressures look particularly strong. Higher yields may also help limit the upside for risky assets, such as equities and corporate bonds. Their valuations already appear fairly stretched in many cases. And when it comes to equities, an extremely strong rebound in corporate earnings already appears to be discounted. As a result, we forecast only small gains in equities across both DMs and EMs, and expect credit spreads to narrow only a little, if at all, from here.