We think the sell-off in DM bonds will resume

While the yields of long-dated government bonds in the euro-zone, UK and US have dropped back a bit in recent days, we think they will rise between now and the end of 2023. We expect increases in yields to be particularly large in the US given our view that high inflation there will prove persistent.
Franziska Palmas Markets Economist
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Is inflation about to spell trouble for the stock market?

US inflation hit its highest level since the 1990s in October and has now reached a rate that, historically, has coincided with very poor stock market returns. Notwithstanding the uncertainty around the impact of the “Omicron” variant of the coronavirus, we don’t expect inflation to stay at quite such high levels, so we aren’t among those calling for a stock market crash driven by high inflation, or a decade of negative real returns like we saw in the 1970s. But we do think investors are underestimating the chance that inflation remains high enough to put the brakes on the stock market’s gains, which we think will be underwhelming over the next few years.

1 December 2021

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Spillovers to other emerging markets from Turkey’s ongoing currency crisis have been limited so far and we think this will remain the case even if Turkey’s financial markets remain under pressure.

24 November 2021

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We think US inflation compensation will rise further

US 10-year inflation compensation has risen by another 20bp or so over the past month and we think it will increase further as inflation in the US proves more persistent than most expect. This is one of the reasons why we forecast the yields of long-dated US Treasuries to rise over the next two years.

19 November 2021

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Chinese equities may underperform even if Evergrande fears fade

Even if concerns about potential spill-overs to China’s financial system from troubles at Evergrande fade, we still expect Chinese equities to underperform equities elsewhere over the next two years.

4 October 2021

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A deeper dive into Chinese equities’ sectoral performance

While financials and real estate have been among the worst-performing sectors in the MSCI China Index this year we think that there may be scope for them, as well as the energy sector, to outperform the materials and health care sectors and “technology” sectors over the next two years. This is because the dismal prospects for earnings in financials, real estate and energy already appear to be reflected in current market prices, whereas expectations for earnings in other sectors still seem too upbeat to us.

29 September 2021

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The German election & the outlook for E-Z bonds & the euro

We think that regardless of which coalition ends up governing Germany in the aftermath of the general election, there won’t be a big shift in fiscal policy or Germany’s attitude towards European integration. Accordingly, we remain comfortable with our view that government bond yields in the euro-zone will rise more slowly than in the US and weigh on the euro/dollar exchange rate between now and the end of 2022.

27 September 2021
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