Sa. Apr 20th, 2024

• The Global Financial Crisis (GFC) in 2008 has led to a zero-interest rate policy and quantitative easing for the past 15 years, which has caused asset inflation.
• U.S. treasury yields have now surpassed 5%, diminishing the appeal of holding other assets such as equities and real estate with similar returns.
• Average rental yields in the U.K. also fall below the CPI inflation rate, making gilt yields potentially more attractive investments.

Global Financial Crisis: Zero Interest Rate Policy & Quantitative Easing

The Global Financial Crisis (GFC) in 2008 led to a zero-interest rate policy and quantitative easing as the norm for the past 15 years. This policy has contributed to asset inflation, which is anticipated to reverse but remains uncertain.

U.S Treasury Yields Surpass 5%

U.S treasury yields at the start of the yield curve now surpass 5%, reducing incentives to hold other assets such as equities and real estate which all return approximately 5%. Dylan LeClair, an analyst at Bitcoin Magazine, has circulated a chart demonstrating that the current yield of the U.S three month treasury rate is roughly equal to that of S&P index yield and U.S corporate bonds (below).

UK Rental Yields Fall Below CPI Inflation Rate

The average rental yield in the UK for real estate ranges from 5-7%. This falls below Consumer Price Index (CPI) inflation rate so gilt yields become potentially more attractive investments as they climb above 5%.

Rates Comparison

Region | Area | Gross Rental Yield

East Midlands | City of Nottingham | 6.49%

Boston District | 6.01%

Mansfield District | 6.00%

East of England | Fenland |5 – 7 %

Conclusion

In a high-interest rate environment, U.. real estate and equities are not as desirable as they once were due to their low returns compared with treasuries yielding over 5%. Therefore investments such as gilts become more attractive than rental properties or stocks due to their higher potential returns above inflation levels

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