January 8, 2025 - 07:15
In a recent discussion, Jurrien Timmer, Director of Global Macro, highlighted the ongoing rise in bond yields and its implications for the financial market. Since 2022, the interest rate landscape has undergone a significant reset, prompting a shift in how investors view risk and returns. Timmer emphasized that as bond yields increase, they start to compete with equities, fundamentally altering investment dynamics.
He noted that stocks traditionally offer a premium over what is considered a risk-free asset, but with rising yields, this premium may need to adjust. The long-standing period of suppressed risk premiums appears to be coming to an end, allowing bond yields to rise more substantially. Looking ahead, Timmer suggests that bond yields could potentially surpass the 5% mark by 2025.
However, he cautioned that the lingering effects of inflation, exacerbated by the COVID-19 pandemic, could complicate matters. If the economy accelerates before inflation is fully under control, it could hinder the Federal Reserve's ability to lower interest rates further, leading to a more volatile economic landscape.
