Markets Set for New Normal as Interest Rates Rise

Financial markets are bracing for a new long-term normal in interest rates as investors watch bond markets closely. The question is no longer how much further yields could rise, but what the new normal will be. In Europe, yield spreads between member states are moving back into focus, with French government bonds under pressure.

High energy prices, inflation concerns, rising policy rates, and enormous levels of public debt make for a challenging combination for bond markets. Governments, companies, and investors must adjust to this new reality, which is actually the norm rather than an anomaly.

Asian markets are providing cautious leads, with Japan's stronger-than-expected consumer price inflation adding to interest-rate pressures. The Hong Kong equity market is catching up with Wall Street's previous losses following the holiday break.