Drivers and denial are both deep-seated Amongst the drivers we would list debt, demographics, disruptive technology.distribution of wealth, central bank balance sheets and heightened uncertainty. Tothis fundamental backdrop for low rates we think there is 'technical'resistance foryields to rise. This comes in the form of denial, or refusal to accept, that the lower-for-longer theme is here to stay, manifested in persistent positioning for higher yields.Lower longer-run equilibrium We think rate hikes from the BoJ and ECB remain a long way off. For the US, if andwhen rates do start to rise, it is unlikely they will reach the levels of the last cycle.Weshould remember that lower-for-longer does not mean a smooth path for yields.lndeed, we would have thought fixed income investors had been getting used todealing with outsized surprises (fat tails). and the balance of risk moving to loweryields (asymmetry).G4 yields have in fact converged on the Japan scenario.Failure to accept "lower for longer" Lessons learned from Japan include the setting-up of range trading strategies in thelong maturities and intensifying the search for relative value within and across markets.This means combining strategies between credit and rates, as well as EMand DM. Furthermore, thematic investing is likely to increase in popularity whilst theretums on offer from traditional investments remain so paltry.This means thatsometimes accepting less liquidity is another way to increase retums.

What has to happen to change the view?

We are often asked this question. One piece of economic data, a central bankannouncement,or big rise in yields just doesn't do it. ln fact, higher yields from earlyrate hikes will likely present an opportunity to enter the market at the top of the yieldrange.Our view is fundamentally based, so the drivers that explain lower yields -orat least enough of them - would need to move into reverse.so our forecast of 1.0%for the Us 10-year Treasury for 2022 is based on our estimates for equilibrium andfair value, not the latest news item.