(AOF) – “Rate: where is the limit of what is bearable?” asks Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers. US yields have increased by around 100 basis points since September, despite rate cuts by the Federal Reserve and the ECB, he notes: persistent inflation and fiscal uncertainties continue to push real rates to the increase. This situation of higher yields poses a valuation risk for cyclical assets, “could potentially slow down the anticipated rally of European assets”.
According to Florian Ielpo, the crucial question remains at what level stabilization will occur. The rise also reflects growing concerns over fiscal policies and renewed government deficits seen this year in various regions.
Europe’s nascent recovery is now under threat, not because of the pace of the ECB’s rate cuts, but because long-term yields are spiraling out of its control, potentially hampering investment. The dilemma for central banks is whether to cut rates, which could cause long-term yields to rise if the cut is seen as premature, or raise rates, which could negatively affect short-term financing and the broader economy: “a dead end” according to the manager.
