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“Inflation trends and associated risks around interest rates and exchange rates may have direct sovereign credit implications,” Fitch Ratings said in its latest report titled ‘Inflation Impact On Sovereigns Depends On Real Interest Rates.”

Key takeaways

“Inflation impact on sovereigns depends on real interest rates.”

“US inflation and bond yields will rise in the medium term. “

“Forecast US inflation to be 2.5% at end-2023 and 10-year treasuries to yield 2.3%.”

“Expect global yields to follow US yields higher though Japan has shown low yields can persist on country-specific factors for an  extended period.”