This will likely result in a slow normalisation of the yield curve with little change in the range for long rates despite any drop in short rates.
This year has been a roller-coaster for the bond market as alternating waves of pessimism and optimism mirrored the wide swings in economic data. However, higher-yielding sectors, such as high-yield corporates and hard currency emerging markets debt, continued to post positive returns, albeit slower than in 2023.
An environment of high and stable long-term rates supports the fixed-income bull case. This will be a disappointing market for those seeking a quick drop in yields. Even with the likelihood of rate cuts, long-term yields should remain centred around current levels as a fair amount of rate cuts are already priced in and loose fiscal policy — and its resulting heavy government bond issuance — may impede any substantial, sustained decline in long rates.
