Bank of America: Lower Real Yields Could Ease Pressure on Equities - FJElite

European equities are up 12% year-to-date and 35% over the past two years, supported by EPS expectations at record highs and the equity risk premium at a 25-year low. That support has been partly offset by the US real bond yield rising to around 2.4%, just below a 20-year high, increasing the discount rate for global equities.

There is scope for that pressure to fade. The rise in real yields was driven by a hawkish shift in central-bank expectations as inflation and US jobs data strengthened, but the latest data point the other way. US payrolls fell by 23,000 in July, the three-month run rate dropped to 20,000, and core PCE is tracking at 0.19% month-on-month. If that continues, US 10-year yields could fall toward 4.50%, pulling real yields lower and reducing a key headwind for equities.