Valuation of Long-term Yields are Stretched

| Multi-Asset

There are multiple ways to assess the theoretical fundamental valuation of yields but it should in essence take into account growth, inflation and term premia. Given the current level of growth and inflation, the fair value of US 10-year yields should be in the region of 3.6%.As our chart shows, compared to the actual level of 1.5%, we are currently experiencing the largest deviation from fundamentals since at least the early 1990s. This is exactly what central banks’ gigantic accommodation aims at: lowering the attractiveness of long-term rates, reducing financing costs and inducing consumption and investment in riskier alternatives in the real economy or – more often – in financial assets.


Valuation of Long-term Yields are Stretched

Source: Unigestion, Bloomberg, as of 31 March 2021

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