The Rebalancing of Bond Prices and Stock Prices

Bond and stock prices were artificially high due to an imbalance of supply. Now the supply is rebalancing with bond prices adjusting to where they should be, reflecting inflation expectations and real yields consistent with inflation. A small positive risk premium is expected for bondholders. The rebalancing may lead to a rise in bond yields, with potential rates of 4.5% for 10-year and 5% for 30-year bonds. This rebalancing is essential for inflation to be durably controlled, irrespective of the current narrative around inflation or recession.