Economic readings continue to point to a “soft landing” through the next few months, characterized by low and falling inflation and a resilient labor market. Consequently, the Fed raised interest rates for what is probably the last time during the current cycle. The concern for markets this week shifted to the sustainability of continued fiscal spending in a world where the unemployment rate remains below trend and the economy is not clearly in a recession.
Coupled with the policy shift from the Bank of Japan, which raised its upper bound for the 10Y JGB yield to 1.00%, the expectations for higher risk premium in longer maturity bonds could spill over to spread sectors and equities as higher term premium could push credit and equity risk premia higher.
This post appeared at ValueWalk.com.