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Rising long-term yields reflect a more optimistic secular outlook
July was the month when investor consensus pivoted from recession to soft landing. August is set to be the month when investors’ focus pivoted from the short to the long term, in our view. If you expect the US economy to land softly, you then also have to ask: “Land softly to what?” Over the last month, the 30-year Treasury yield has risen by around 50 basis points to a 12-year high of 4.42%. At the same time, market pricing for the fed funds rate in five years—a proxy for investor beliefs about the long-term neutral fed funds rate—has risen about 50bps to roughly 3.75%. For context, the Fed’s current ... (full story)