Recently, nominal yields have been rising due to higher inflation expectations; last week, however, real yields rose, by about 50 basis points, notes Jurrien Timmer, Director of Global Macro. In his weekly update, Jurrien believes that countries around the world are facing the same problem right now: debt levels are too high, and growth is slow. Before the pandemic there was talk of competitive devaluation; with interest rates low or even negative, countries wanted to see their currencies devalued, so that they could get out of debt jail relatively for free. Now policy makers are thinking instead that the world needs inflation: when debt stock is too high and rising, and there is no ability to grow out of it, the only option is to inflate your way out, either through currency devaluation or negative real rates. With policy makers increasingly wanting inflation, it could be more secure for investors to make portfolio moves aligned with that goal.
Recorded on March 1, 2021.