How do you see bond yields play out in three to six months in case the 'higher for longer' narrative for central banks, especially the US Fed and the Reserve Bank of India (RBI), holds true?
Current bond valuations are not pricing in a 'higher for longer' scenario and yield may come under pressure in case monetary easing gets delayed. The balance of risks to growth has increased with global consumption expected to weaken on restrictive interest rates, fading fiscal stimulus, and exhausted savings.
Given the slowing economic trajectory and comfortable inflation, we expect the US Federal Reserve to start cutting rates by 150-200 basis points (bps) at a minimum in this monetary cycle starting from September 2024.
While global markets have started to price in the expected Fed's reaction function, we expect the RBI to cut rates once they have greater confidence on stability of inflation or slowdown in growth. We expect 50-75 bps of rate cuts by RBI in the next 6-12 months.
What's your take on the possibility of a US recession? How are financial markets pricing this in?
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