Euro zone: The return on bonds and equities in the past and in the future

Disinflation has since the early 1980s led to a fall in long-term interest rates and a rise in the return on risk-free bonds in the euro zone. When we compare the average return on risk-free bonds and on equities over this period, we see that the return on bonds is, admittedly, lower than on equities, but not by much (400 basis points per year, which corresponds to the compensation for risk) and that it is high. What will happen with these returns in the future? It is hard to imagine that inflation and therefore long-term interest rates will decline further: on the contrary, there could be a gradual rebalancing of income distribution in favour of employees and inflation could rise, accentuated by the skewing of the economy towards services and by a return to regional value chains. If we take future long-term interest rates as they currently appear on the yield curve, we should expect 10-year interest rates to rise by 6 basis points per year for 10 years. This would lead to an average annual return on risk-free bonds starting at -0.8% per year rising to +0.2% per year in 10 years, and a comparison of returns will therefore be far more favourable to equities in the future than in the past.