fxstreet.com 08 Feb, 2021 08:45 am

Real yields to remain around current levels for some time – CE

Real yields to remain around current levels for some time – CE
Returns on ten-year Treasuries are nearing 1.20% but economists at Capital Economics still would not expect Treasury yields to rise very sharply from

They suspect that if they do increase over the next couple of years, it is likely to be driven by higher inflation compensation rather than higher real yields.Admittedly, we wouldn’t be surprised if inflation compensation increased further as the economic recovery gained traction.” “We think the Fed would be comfortable with higher inflation compensation.” “There may come a point over the next couple of years where higher inflation compensation prompts investors to reassess the outlook for monetary policy, thereby pushing up real yields.

But we don’t think that this would lead to tighter monetary policy, and by extension, rising real yields.And in any case, the Fed has emphasised that it wants to see realised inflation sustainably above target before it considers any material tightening in monetary policy.

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