Michael Reynolds, investment strategy officer at Glenmede Trust Company believes persistently low inflation in developed economies "should constrain
nominal yields, and tariffs are more likely to weigh on prices via demand destruction."
A further escalation of trade tensions has resulted in a considerable drop in US
nominal yields, a drop in US real yields, increased Fed rate cut expectations and a weaker US dollar."
Nominal yields on the longer-end have had difficulties recently breaking out to new highs.
Third, term structure models assume stationarity for
nominal yields. Decomposing long-term yields into expectations of the future short-term rate and term premiums is one core question in the term structure literature (Duffee 2002; Wright 2011; Creal and Wu 2016).
But for now the spike in
nominal yields has created an unfavourable environment.
Even nontraditional investors, such as foreigners who can't benefit from the tax-exempt status of most munis, are attracted to the muni market because of relatively high
nominal yields compared to those of overseas, said Thomas Casey, senior portfolio manager, Tax-Sensitive Strategies at Standish Mellon Asset Management.
However, I only use 12-, 24-, 36-,..., 108- and 120-month
nominal yields ([N.sup.N] = 9) and 24-, 36-, 48-,..., 108- and 120-month TIPS yields ([N.sup.R] = 8) for the estimation.
Indeed, about $6 trillion worth of government bonds around the world today have negative
nominal yields. The next stage of unconventional unconventional monetary policy - if the risks of recession, deflation and financial crisis sharply increase - could have three components.
Meanwhile, the ECB is expected to introduce additional unconventional measures to drive rates in the opposite direction, even if that means putting further downward pressure on some government bonds that are already trading at negative
nominal yields.
We focus on forecasts of the quarterly average level of 7 different interest rates: the federal funds rate and the
nominal yields of Treasury securities at 6 different maturities between 3 months and 10 years.
Adrian Hartshorn, Senior Partner in Mercer s Financial Strategy Group said, Although the improvement in
nominal yields is welcome, any decision to lock into historically low yields by hedging at current levels requires careful consideration, and should be balanced against other hedging opportunities.
"Given the backdrop of low inflation, low
nominal yields and the significant compression in valuations driven by the wall of CB liquidity, real returns/yields are now the dominant differentiator in terms of investment flows and currency support.
