Bonds or equities? Pictet says 5% US 10-year Treasury yield could tip the scales

Swiss private bank Pictet Wealth Management warns investors to prepare for higher inflation and bond yields, as central banks' 2% target may become a 3% reality. Kelvin Tay, chief investment officer for Asia, states that 5% on the 10-year US Treasury yield could influence whether investors prefer bonds or equities. Pictet projects a 5% annualized return for US government bonds over the next decade, compared to 0.9% in recent years.

The term premium and inflation are driven by ageing populations, resource competition, and geopolitical risk. Artificial intelligence is expected to boost productivity, reduce inflation, and benefit service-oriented economies like the US and the UK. Emerging markets will play a crucial role in AI development, with China, South Korea, Taiwan, and other countries leading the charge.

Local currency bond markets are deepening, providing more stable funding options and reducing foreign exchange exposure. Singapore is expected to maintain stable growth, with a strengthening Singdollar and favorable conditions for local equities.