On a historical basis, our fixed income team sees a level of US real yields at or close to the long-run potential real economic growth rate as an opportunity.
In recent months, as our Graph of the Week shows, 10-year/10-year forward US real (inflation-adjusted) yields have reached a level above 2%. The team sees that as an attractive level on the basis that long-run potential real GDP growth should be the product of population growth, contributing 0.5%, with deepening capital stock adding 0.5%. To these two components of GDP, we add an estimated 1% for productivity growth, arriving at a total of around 2%.
The risk to this analysis is that a development such as artificial intelligence or some other unforeseen change transforms the prospects for growth, pushing the potential growth rate significantly higher. In the view of our fixed income team, this time will not be different.
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