We are expecting a gain of 1.6% on US 10-year treasury bonds over the next twelve months. This is comprised of interest income of 2.4%, being offset by capital losses of 0.8%. Over the period, we also expect yields on US treasury bonds to increase from 2.37% to 2.45%.
Our regression of US bond yields against a combination of short-term rates, core inflation, the manufacturing index and curve steepness, continues to show that US bonds are unattractive, with an implied fair yield of 3.33% being significantly more than the 2.37% that is on offer in the market.
An article written from our 4th quarter strategy and asset allocation. Click here for the full article.