At Any Rate: Goodbye to Negative Yields: What to own in world of rising yields over the long term

In this episode of At Any Rate, we say goodbye to negative-yielding debt, which has declined rapidly to just $5.9trn from a peak of $17.2trn in Q1/2020, with Japan now accounting for 78% of the remaining stock. Structural forces pointing to higher real yields, greater macro volatility and faster moving business cycles. Much higher US inflation volatility could easily make inflation average 3-4% over the next decade. A traditional 60/40 equity-bond allocation by our estimates prices in ~5% pa return the next decade, up from 3% at the end of 2021, as the market repricing year-to-date has cheapened US bonds and equities, and raised our 10-year out expected returns by 2% pa relative to end-2021. We favor assets where income can rise more with inflation, and where asset prices fall less, favoring Health Care and Financials, EM FX, Commodities (ex-Gold) and market-neutral hedge funds. Commodity-linked assets provide an effective hedge against the risk of a persistent rise in inflation, including livestock, industrial metals, and energy futures with Energy stocks favored over the short run and Global Utility stocks over the long run.

Speakers

Joyce Chang, Chair of Global Research

Jan Loeys, Head of Long-term Strategy

Alex Wise, Long-term Strategy

Preetham Nanda, Global Index Research

Peter McCrory, US Economic Research

 

This podcast was recorded on June 15, 2022.

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