January Outlook
January 12, 2021  |  By Hank Cunningham

Now that the U.S. ten-year yield is comfortably over 1% and inflation expectations are well over 2%, what is next?

The new U.S. administration will likely be expansionary, providing even more stimulus. Along with the vaccine rollouts, growth prospects are improving. This should continue to heighten inflation worries. There remain headwinds for inflation, namely: demographics, technology and excess capacity.

Nevertheless, we favour the reflation argument, which should produce higher bond yields, with the U.S. ten-year on its way to 1.25-1.50% in the medium term. With this forecast in mind, corporate bond yields have likely reached their nadir and will thus produce only modest returns henceforth.

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