There is the possibility of the US 10-year bond yields hitting 1% as the economy worries about the COVID-19 Delta variant spreading globally.
While most of the world was focused on the pandemic recovery and the success of the vaccinations, the Delta variant meant it was too early to get complacent.
Government bonds, in particular, looked the “most over-valued” because of central bank buying distortions followed by credit where spreads failed to compensate for longer-term risks in that space.
Chris Iggo, chief investment officer for core investments at AXA Investment Management, said: “The macro narrative remains one of a post-pandemic recovery. The good thing is that in developed economies, vaccination rates have risen strongly in recent months and the evidence is that, on the whole, vaccines provide protection against serious illness. So despite some wobbles, equity and credit markets continue to reflect a positive macro outlook.
“Rates remain low and could go lower so it looks like long-term bond yields will remain low for some time. Of course, [Northern Hemisphere] summer illiquidity is adding to a bit of volatility in rates markets but the trend is lower 10-year yields. I would not rule out Treasury yields testing the 1% level in the weeks ahead.”
Meanwhile, for equities, factors such as ongoing quantitative easing, US fiscal stimulus and above-average household savings should fuel positive growth in the equity markets.
Looking over the longer term, Iggo said there would be focus on whether companies continued with the working-from-home trend or whether they returned to the office. This would then have fiscal implications on infrastructure and urban planning as well as affect the property market.