Investors could demand more compensation for the risk of owning long-term bonds given rising public debt and a more uncertain inflation outlook, BlackRock said.
Markets are currently grappling with the prospect that neutral rates–the interest rate that neither stimulates nor restricts economic activity–could be settling higher following the Covid-19 pandemic.
“We think neutral rates are higher in both the U.S. and Europe, partly due to looser fiscal policy and the investment demands tied to the low-carbon transition.”