Highlights US Treasuries: The uptrend in US Treasury yields has more room to run. However, the primary driver is starting to shift from increased inflation expectations to higher real yields amid greater confidence on the cyclical US…
Global equity valuations are at a level where they are very sensitive to changes in the discount rate. Chart 1 shows that the cyclically-adjusted earnings yield on the S&P 500 is slightly below its 2000 low. Equity investors have thus…
Highlights The post-2008 boom in stocks, corporate bonds, and real estate is a ‘rational bubble’, because the relationship between risk-asset valuations and falling bond yields is exponential. But the ‘rational…
The widening in US swap spreads has garnered attention among many market commentators. The fear is that like in 2008 or in March 2020, wider swap spreads foretell major market troubles in the near future. While a…
Highlights This week, we present the second edition of the BCA Research Global Fixed Income Strategy (GFIS) Global Credit Conditions Chartbook—a review of central bank surveys of bank lending standards and loan demand. Feature…
EM breakeven inflation rates have been steadily declining relative to the US. This is a very important dynamic. Flows into EM are very sensitive to the inflation outlook, and the perception of declining inflation risk invites…
Last week, we observed that evidence from the past decade suggests that higher yields are not always a risk to stock prices, as long as the yield increase reflects favorable economic conditions, which also push up the dividend…
Highlights The amount of fiscal stimulus in the pipeline is more than enough to close the US output gap. Inflation is likely to surprise on the upside this year. The Fed will brush off any evidence of economic overheating during the…