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A Global Savings Glut Is Set to Anchor U.S. Yields Below 2%

  • Consensus is rate hikes will still leave real yields negative
  • Weaker inflation outlook means ECB, BOJ remain accommodative
Updated on

Anyone gearing up for bond yields to surge in 2022 should think again. A global glut of saved cash has the potential to restrain an increase in rates, even as central banks dial back their pandemic stimulus. 

The strength of demand for bonds even in the face of deeply negative real returns underpins the broad consensus that 2% may act as a ceiling for U.S. 10-year yields in the coming year. Hedge funds have built up the biggest short positions in 11 months with rates expected to climb in 2022 thanks to both inflation and expectations that the Federal Reserve will respond. But strategists expect the advance to be gradual and top out in negative territory on an inflation-adjusted basis.