Viewpoint: Bond Yields Will Rise, But When?
20 MARCH 2020
U.S. bond yields have been declining for four decades; why would the next decade be any different? - Jim Caron, Morgan Stanley Investment Management, explains
As fixed income investors, this is the question we get asked most often. If we had to pick a date, we would say 2024, but it may be sooner since market pricing tends to anticipate the future.
Over the next decade, the vast majority of the ‘baby boomer’ generation will become eligible for government spending programs, funded by increased debt issuance (see Display 1).
Monetary policy has pushed interest rates to extremely low levels, limiting how much lower rates can go without doing more harm than good.
Fiscal stimulus may take the place of monetary stimulus during downturns in the economic cycle. Fiscal stimulus is a heavier burden to government debt valuation than monetary stimulus and therefore weighs heavily on bond yields.