Rates Spark: The Real Deal

While oil and inflation drive short-term rate movements, structural factors like AI-driven growth and record bond supply are keeping real rates elevated. Unless a recession occurs, real rates are unlikely to return to the ultra-low levels seen after the global financial crisis.

Key Takeaways

• 1.Real rates are structurally higher due to better growth expectations linked to AI and fiscal boosts, moving away from post-GFC lows.
• 2.Massive bond supply and the ECB's reduction of its bond portfolio are increasing term premiums and keeping yield curves steeper.
• 3.Inflation expectations (2.2% in Eurozone, 2.4% in US) appear benign but might be underestimating medium-term risks.

Table of Contents

• Rates Spark: The real deal
• US Treasuries still holding at just under 4.5%, and still sticky
• Keep an eye on real rates as structural forces cannot be ignored
• Recent dynamics focused on inflation, but structural factors in real rates still important
• Wednesday's events and market view
• Author
• Disclaimer

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