Bonds & stocks may rally as "higher for longer" unravels

We think the “higher-for-longer” narrative that has taken hold in the market won’t last through 2024. We suspect that central banks will generally cut faster than investors seem to expect and that, as a result, the bond market sell-off will turn into a rally. We project 10-year sovereign bond yields in major advanced economies to fall by as much as 100bp from their current levels. That might not prove an immediate boon for “risky” assets in both developed markets (DMs) and emerging markets (EMs), though, if we’re right that near-term growth will disappoint investors’ now-optimistic expectations. But we don’t think any pain will last long: we expect risky assets to rally in 2024 as the global economy recovers and central banks turn to monetary easing. In fact, we think equities will benefit from growing enthusiasm about the transformative prospects of “AI” technology – especially in the US.