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Outlook update on policy rates and bond yields
Guy Ertz, PhD, Deputy Global Chief Investment Officer - BNP Paribas Wealth Management
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Key Messages

1. Due to resilient economic growth, sustained high energy prices and high-interest rate volatility, we are adding one 25bp hike to our US Fed and ECB forecasts. We now see a BoE hike in November (previously December).

2. The recent surge in government bond yields has been driven by real yields via AI-related investment capital and upward revisions in the natural rate of interest, suggesting a “higher for longer” environment. Accordingly, we have raised our 12-month yield targets by 25bp for the US, Germany, and the UK. The new targets are 4.75%, 3% and 4.65%.

3. Given the renewed attractiveness of UK yields, we upgrade UK government bonds to Positive.