Real interest rates in the US and Europe have reached negative levels that are unprecedented in recent history. We have to go back to the 1970s to find similar levels, and only a handful of past examples since WWII can be used as reference points.
We think the journey back to zero could be one of the key drivers of crossasset relative returns and volatility. The move could hurt bonds’ risk adjusted returns and credit IG; it should weigh on equities, favour Value over Growth stocks and cyclicals vs defensives; and it should be negative for gold.
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