Differing paths of equities and fixed income mark return to longer-term norm
A sell-off in global bond markets combined with a rally in stocks this year shows that investors’ all-consuming obsession with the path of inflation and interest rates may finally be ending, say analysts. Wall Street has led a 3.8 per cent gain for developed market stocks so far this year, boosted by the outsize strength of the US economy, while an index of global bonds has dropped 2.8 per cent as investors have dialled back their expectations of interest rate cuts.
Investors are also rethinking whether they need to be quite so focused on monetary policy, given that the buoyant US economy so far appears to have shrugged off much of the impact of higher rates, which have been held at a 22-year high of between 5.25 per cent and 5.5 per cent since July last year. Economists polled by Bloomberg expect benchmark 10-year US borrowing costs to fall from a current level of 4.2 per cent to 3.6 per cent in 2025, still higher than under 2 per cent at the end of 2019.