Back to normal

One of our key investment themes centres around anticipated rate cuts this year, though expectations are undergoing a shift. US bond markets are witnessing significant changes, with interest rates experiencing notable increases since the year began, both in the short and long terms. The 2-year Treasury yield has surged back to 5%, while the 10-year has risen by a substantial 80 basis points to 4.7%. We don't foresee a swift turnaround, especially as recent inflation figures have surpassed expectations, leading the Fed to tread cautiously on rate cuts. Simultaneously, the US Treasury will need to offer attractive yields to entice new investors as it issues fresh debt. While central banks are winding down their rate-hiking endeavours, we're entering a phase of interest rate normalization at levels not seen between the financial crisis and the pandemic. For equity investors, this signals a return to scrutinizing valuations, with discount rates now in play. This shift favours our quality-value investment approach at ECP.