In the second half of 2020, as the economy healed and macro growth prospects began to improve, a great disconnection in the pricing of the economic recovery occurred between risk assets and government bonds. Inflation expectations surged, sending breakevens to or above their pre-crisis levels. However, nominal yields did not follow through and real yields dipped deep into negative territories for the first time since 2012 in the US and into unchartered territories in Europe.
The growth premium is now starting to appear in government bond pricing and accounts for about half the increase in yields this year, with real rates picking up. Our view is that this trend ought to continue in 2021 but remain constrained, serving as an ongoing stimulus for the global economy.
Source: Bloomberg, Unigestion. Data as at 15 January 2021.
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