Higher Rates, Higher Growth Premia?

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The adjustment in the growth premium embedded in bond yields has had a moderate effect on financial assets overall, at least on the surface. Most equity indices delivered a positive performance in February and have been rising significantly since July despite the rise in bond yields. The main reason for the absence of a lasting correlation shock is that the rise in inflation is perceived as temporary by markets. The lack of market concern about the upward bond yield adjustment is also supported by strong confidence in the ability of central banks to contain excessive rate hikes. However, if inflation continues to pose a threat and surprises on the upside, as we suspect it could, then we could see a marked repricing of the growth premium.

 

Higher Rates, Higher Growth Premia?
Source: Bloomberg, Unigestion. Data as at 5 March 2021.


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