It will be a case of “lower for even longer” in terms of yield, as we continue to see a shift in policy, according to Schroders.
Stuart Dear, Schroders deputy head of fixed income, said fiscal policy had taken on more of the load to stimulate economies, with monetary policy likely in its final phase in its current form.
“Lower rates are hard to escape… when you’ve got debt levels that are very high its hard for economies to effectively withstand much higher levels of interest rates,” Dear said.
“And there’s the issue of conditioning of markets where they have now become accustomed to centrals banks responding at the first sight of crisis.
“It makes it very hard then for central banks to get rates back to what might be more normal levels.”
Dear said there was upside risks to inflation cyclically, but structurally it was expected that inflation would stay relatively muted.
“I think we will see inflation lift a little bit next year; for one thing, we’re getting some recovery coming through although I would say that economies are operating very well,” Dear said.
“There’s not a lot of cyclical inflation pressure but we do think that inflation does lift a little bit and part of that is base effects when you get the impact of the collapse in oil prices that we saw at the start of the year, for example.
“There’s also the possibility that markets get a bit more excited and we might see some further inflation...