Economics Weekly: Rising Bond Yields and Economic Normalization

Friday, November 13, 2020

Over the last week, the combination of the (contested) Biden victory for the White House and, more importantly, the news of a possible COVID-19 vaccine has resulted in a sharp increase in bond yields. The 10-year T-Note yields have increased by a significant 21 basis points in just the last week. If this really is the start of the end of this pandemic, these yields would be expected to move back up to their pre-COVID levels over time. That could mean a return to the range they were in during the six months pre-COVID, i.e., 1.5%-1.9% for 10-year yields. This is depicted in chart 1 of the report, which also shows that such an increase is well above the current consensus estimate of 1.14% by the end of 2021. This has meant that current interest rate expectations may need to be re-rated upward, with the result that investors are once again starting to fret about the impact rising bond yields might have on their equity portfolios.

In this week’s Economics Weekly, we look at rising interest rates and when they might become more of a problem for equity investors.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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