The following slide deck covers their discussion of the following:
- The bond market has enjoyed a 10-year tailwind from a collapsing term premium. We believe this is probably over and is being driven by three significant trends.
- The bond market seems to have embraced a normalization in short rates on the back of fiscal stimulus, but investors may be behind the curve when it comes to long rates. We believe the foundations for a higher term premium are in place, something investors haven’t dealt with in a decade.
- Investing in an environment of a rising term premium is difficult. There are few equities or fixed income securities that perform well and risk management is difficult.
- We believe the trade war is having multiple economic impacts on growth and inflation, widening the range of possible outcomes for risky asset prices.
Download the slides here: The Investment Consequences of a Normalization in Long Rates.