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  • Christian Armbruester

Yields



Short term interest rates have been a one way bet for more than a year now. The folks in the bond markets may have some ideas about when the Fed will pivot, but we are clearly not there yet. As such, we are reluctantly getting used to a much higher yield environment.


The drama has been at the long end of the curve. That has to do with maths and the discounting of future cash flows. The rule of thumb is that a one percent change in interest rates equates to a ten percent move in the 10-year government bond, and there have been huge losses for anyone who was caught long a year ago.


One’s pain is another’s gain, and the question is, with long term interest rates in the US now close to 4% and thirty-year UK Gilts to be had at 4.6%, should we be piling in? No one expects the Spanish Inquisition, but all leading indicators are confirming that inflation will continue to fall, and interest rates are to start coming down next year.


Of course, there is the risk that central banks will lose the battle against the monster they created, and the world is trapped in a vicious cycle of rising costs and increasing prices. However, that is where the banking crisis comes in, and a fair chance that the printing presses could be turned back on again. Seems to be working for Japan.


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