Three years ago, we concluded that benchmark ten-year Treasury yields would top out in a 3.5%–4.0% range in the next monetary tightening cycle. Now that the next rate hike cycle is well underway, we revisit our analysis, finding that our original assessment remains the most probable conclusion. In fact, the low end of that ceiling appears the more likely outcome today, with one important caveat: the potential for an inflationary dynamic that surprises.
Although the election results provide a powerful “risk-on” catalyst in the short term, the underlying long-term problems facing France and the Eurozone are unlikely to go away under a Macron presidency, so the old adage “sell in May and go away” may be vindicated yet again.
Change is in the air and the prospect for a bit of sunshine to break through the overhang of slow growth and lower-for-longer yields is palpable. Of course, the sun doesn’t shine forever, and overall our views are little changed. The things we have been worried about for some time—high valuations for certain risk assets, record-low interest rates, slow economic growth—have not gone away. The surest call to make for 2017 is that higher growth expectations will be paired with the distinct possibility of negative outcomes, putting a premium on diversification and liquidity management.
Investors that buy developed markets government bonds have been faced with unpalatably skimpy or even negative yields on offer for some time. The question is no longer why, but for how long? Fed funds futures and benchmark ten-year US Treasuries suggest the answer is several more years, a similar timeline to other markets. But as we know, markets have a tendency to surprise.
As the cacophony surrounding the 23 June “Brexit” referendum grows, just how much the United Kingdom stands to lose or gain from leaving remains unclear, and investors with substantial exposures to British assets would do well to pay attention to sentiment.
In this edition of CA Answers, two members of our research team debate whether markets have entered a new bear phase.
The Saudi equity market is closer to presenting an interesting opportunity for international investors than this time last year.
After lying quiescent for many months, volatility has suddenly returned to government bond markets. Many investors have been surprised by the ferocity of the move and are asking themselves whether this is anything more than a tempest in a teacup or the beginning of something bigger. In our view, a combination of fundamental and technical…
Many factors contributed to the global financial crisis, but an excessively high level of indebtedness built up over many years was a crucial one. Although the crisis first blew up in the US housing and mortgage markets, the receding tide of liquidity revealed many other exposed debtors, especially within the Eurozone. In the aftermath of…
Several important central banks—most notably the European Central Bank and the Swiss National Bank—have recently broken the “zero bound” for interest rates by moving their official policy rates decisively into negative territory, causing rates on some money market funds and wholesale deposits denominated in those currencies to also go negative. At this pace, it may…