![\"Era](\"https:\/\/static.toiimg.com\/thumb\/msid-132512174,imgsize-47864,width-400,height-225,resizemode-4\/moodys.jpg\")
<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/div><\/div>\n<\/div>\nThe era of ultra-low interest rates that followed the 2008 global financial crisis may finally be over, with investors now preparing for a prolonged period of higher borrowing costs, sustained investment in artificial intelligence (AI) and infrastructure, and elevated geopolitical risks.According to a recent report by Moody’s Ratings, \u201cA new macro regime is driving differentiated repricing across financial assets”, said market pricing across bonds, equities, credit and commodities indicates that the post-2008 era of ultra-low interest rates and subdued inflation has given way to a fundamentally different macroeconomic environment.\u201dAccording to the report, current market pricing reflects a broader shift in the global economic environment rather than a disconnect from the real economy. “A common refrain is that financial markets are disconnected from the real economy and thus underpricing macro risk. We disagree and see market pricing… as a coherent response to a macro regime shift – away from the post-2008 world of low growth, subdued inflation and suppressed real rates, toward one of greater uncertainty, structurally higher real rates, and policy shaped by geoeconomic and security concerns,” it said, as cited by ANI.<\/p>\n The global ratings agency said that government bond markets indicate that higher interest rates are likely to remain in place for longer. It also noted that 10-year sovereign bond yields across advanced economies have climbed back to levels seen before the global financial crisis, reflecting expectations of stronger investment demand, larger fiscal deficits and structurally higher inflation.“Long-term government bond yields have risen structurally across advanced economies, marking a durable repricing of duration risk,” the report said. It added that stronger investment demand, firmer inflation and higher government borrowing are leading investors to expect policy rates to remain elevated over the long term.<\/p>\n The report said capital is expected to continue flowing towards sectors backed by long-term policy priorities, including AI, semiconductors, defence, electrification and critical minerals. In contrast, sectors facing AI-driven disruption or structural cost pressures are likely to lag.“The sectors attracting disproportionate capital and policy support – AI and adjacent technologies, defence, critical minerals and energy-transition plays – share these characteristics. Those lagging adoption or facing structural cost pressure are repricing in the opposite direction,” Moody’s said.Moody’s also said industrial metals are increasingly being supported by structural investment in digital infrastructure and the energy transition, rather than the traditional business cycle. At the same time, geopolitical tensions continue to keep a premium embedded in energy prices.<\/p>\n Looking ahead, Moody’s cautioned that current market valuations are based on expectations that AI investment will generate productivity gains, funding conditions will remain supportive and geopolitical tensions will not worsen significantly.“Current pricing hinges on whether expectations for policy-supported, capital-intensive growth translate into real earnings and productivity gains. Any slippage in outcomes, tightening in funding, stress in opaque credit channels or an escalation in geopolitical fragmentation could expose vulnerabilities and trigger a broad reassessment of valuations and credit risk,” the report said.<\/div>\nBond markets point to higher borrowing costs
<\/h2>\n<\/p>\nAI, defence and critical minerals to stay in focus
<\/h2>\n<\/p>\nWhat could change the outlook?
<\/h2>\n<\/p>\n