Credit Suisse Sees Risk U.S. Yields Will Stay Low for Some TimeBy and
Demand for government debt, low inflation to keep yields down
Deputy CIO Varnholt speaks in Bloomberg TV interview
Investors may be underestimating the odds that yields on U.S. government bonds will stay low for some years to come, according to Credit Suisse Group AG.
“That’s a scenario which investors may not be fully pricing in or be prepared for, and it is actually a serious possibility when you look at the medium-term outlook, despite the central bank rate hikes that we do expect for the remainder of this year,” Burkhard Varnholt, the Swiss bank’s deputy chief investment officer, said Monday on Bloomberg Television.
Years of record-low borrowing costs have made it harder for insurance companies and retirement funds to cover their obligations with low-risk government bonds. While the Fed is expected to raise rates two more times this year, the moves may not mean yields will rise a lot anytime soon, Varnholt said, because the network economy has effectively “killed inflation.”
“The big picture is capital-market yields will remain low for longer in the absence of inflation and also in the presence of structural excess demand for long-dated government securities from aging populations,” he said.