The rise in US bond yields signals to the Federal Reserve (the “Fed”) to avoid significantly and rapidly lowering interest rates. This increase, along with the unemployment rate and inflation levels that are favorable for the Fed, reflects the strength of the US economy.
Bond yields could rise further if there is a large budget deficit following the victory of either presidential candidate, potentially impacting all assets negatively as it affects the valuations set by investors.
Investors should avoid portfolio volatility and adopt a long-term perspective by investing in high-quality private assets to adapt to an era of inflation above target levels and relatively high interest rates that do not return to zero. Hence, the importance of asset allocation and diversification.
The best scenario for the markets regarding the outcome of the US presidential elections may be a divided Congress, which could prevent a large budget deficit and allow for serious policy discussions.
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