Fixed Income Experts see bond market risk In its October 2015 edition of Global Financial Stability Report (GFSR), the IMF reports financial conditions in emerging economies to have worsened since April. Their concern is largest for emerging markets, where private sector bank borrowing, foreign-currency exposure, and corporate bond issuance are on the rise. Risks loom […]

Fixed income In Macro Views today we wrote that, if markets don’t settle down soon, we’ll change our call for a first Fed hike to March 2016 from October 2015. Our first graph in this blog entry shows you why: bond markets are signaling a relapse in inflation expectations. We also wrote that we’re much […]

Fixed Income Note that the ongoing volatility seems not to have caused any short-term interbank funding problems. But bond-market–implied inflation expectations for the USA dropped last week to 1.42%. Also, corporate bond spreads have spiked, rendering financial conditions tighter. These two factors weaken the case for a Fed hike in September. Given these two factors […]

Fixed Income U.S. 5-year Treasury bonds are now paying just a 152bp premium over TIPS. In our view, a sustained trend drop underneath 150bp will delay the first FOMC rate cut to beyond September if core PCE inflation and real wage trends start deteriorating too. U.S. corporate junk bond spreads over investment grade corporate bonds […]

Fixed Income We update our forecast table to incorporate June 30 (Q2) closing values for the yield on a 10-year U.S. Treasury bond   Update History: 4 July 2015: Forecast table corrected.

Fixed Income Given uncertainty around Greece and the referendum it has scheduled for Sunday 5 July, we expect safe havens such as U.S. Treasury securities to move up in price a bit next week. Today the yield on the 10-year bond closed at 2.47%. But we are not revising down our forecast for the yield […]

Fixed Income Under our central scenario assumptions, in which Greece does not default or leave the euro area this year, we expect yields to move up for all maturities and the curve to flatten. We see U.S. Treasuries trending down now for the next 12 months. Of course, if Greece does default and exit, the […]

Fixed Income We hold to our forecast for the yield on a 10-year U.S. Treasury bond, which read as follows: We also hold to our central scenario outlook for Fed policy, which we spell out in our Timón Económico blog entry, We revise inflation numbers but not our monetary policy views on Fed or BoJ. Data […]

Fixed Income Short-term yields are negative not only for Germany (depicted below) but also for a slew of other European sovereigns. Bond guru Mohammed El-Erian explains what this means here. Falling yields mean high valuations in local currency terms. The problem, however, for investors who measure their wealth in U.S. dollars and do not hedge […]

Fixed Income We’re puzzled as to what is driving such high demand (high prices, low yield) for long-term U.S. Treasuries. While for maturities shorter than 5 years, UST valuations have slipped in anticipation of a near-term Fed rate hike, for long-term bonds, valuations have sky-rocketed (the yield curve has become extremely flat). One possibility is […]