The site you are about to enter is intended for UK institutional investors and investment consultants only.
Forecasters often anchor their predictions for interest rates and bond yields on some core assumptions. Implicit in the current consensus expectation of interest-rate ‘normalisation’, and in forecasts of rising US Treasury yields, for example, is the belief that interest rates (and yields) should, in the long run, be close to the growth rate of potential nominal GDP. Indeed, this assumption is consistent with the framework used by the world’s leading central banks.
However, using the nominal US GDP growth rate over the last ten years as a proxy for the potential rate of growth of the economy, the chart below shows that the US 10-year Treasury yield has actually traded below this ‘fair value’ estimate of interest rates since the end of the year 2000.
Surely this means that either the pace at which yields revert to this ‘fair value’ average is too slow to be meaningful for most investors, or the model is just wrong.
Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Past or current yields are not indicative of future yields.
Individual Investors will be redirected to bnymellon.com
This is a financial promotion. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only. Past performance is not a guide to future performance. Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.