Long-term interest rates face a significant risk of rising further, driven by a broadening set of inflationary pressures that extend well beyond recent geopolitical shocks.
Thierry Béchu, CIO and managing partner at Kanopy AM, argues that the market’s focus on Middle East tensions has obscured a more complex inflationary landscape where multiple factors are now sustaining price pressures.
The warning comes as financial markets have already undergone a sharp repricing of Federal Reserve policy expectations, with traders decisively moving away from anticipating near-term interest rate cuts.
This shift reflects growing concern that inflation is proving more persistent than previously modeled, complicating the central bank’s path forward.
The diversification of inflation sources means that even if geopolitical risks recede, the underlying pressure on long-term yields may remain intact.
Recent volatility in energy markets, including disruptions in the Strait of Hormuz and the Bab-el-Mandeb strait, has highlighted the vulnerability of global supply chains to geopolitical shocks.