• Over the past year Fathom has switched from a below-market-pricing forecast for long-term interest rates in the US and UK, to one that is predominantly above market pricing.
  • It appears that the rise in the term premium, globally, was at least partly a correction, while in the US and UK, a combination of active fiscal and active monetary policy will provide further support to long-term interest rates.
  • Before QE, deficits mattered for long-term rates, with an increase in the deficit worth one percent of GDP adding some 25 basis points to long-term rates
  • With QE off the table for now, we see a risk that deficits come more sharply into focus, adding as much as 150 basis points to long-term rates in the US and 100 basis points to long-term rates in the UK.
  • We would welcome a return to the ‘higher for longer’ world seen before the global financial crisis: it should bring faster growth in the long term by bringing an end to the era of ‘destructive preservation’.

 

Higher for longer interest rates now seem likely in the US and UK

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