US rates in the medium term
• Where rates settle medium-term is key for investors
• A return to near zero looks unlikely
• Rising bond yields offer opportunities (Focus p2)
• PE ratios down but stocks dearer vs bonds (p3)
Overview
One of the biggest uncertainties facing investors with a 3-5 year time horizon is where US interest rates will settle in the medium run. Will official rates and 10-year bond yields in
2024 - 2026 settle around the 5% area which was regarded as normal in the 1990’s and early 2000’s? Or return to the very low levels of the 2010’s? Or to something in between – say 3-4%? The path of inflation will be very important in the next year or two but, beyond that, the pace of economic growth will be key.
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