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The war between Hamas and Israel – and the potential for escalation to the wider region – has increased the uncertainty around the economic and financial market outlook, but in most scenarios is unlikely to generate a sustained hit to major asset markets. …
26th October 2023
We expect the US Treasury 10-year/2-year yield spread to turn positive before long, and subsequently rise further over the next year or so. The rapid move towards “disinversion” of the US Treasury yield curve seems to have regained steam today as yields …
25th October 2023
Long-term Treasury yields have risen to new cyclical highs despite a generally weak global economic backdrop. Short-term “technical” indicators also suggest to us the surge in yields may have run its course. PMI survey data released earlier today was …
24th October 2023
Concerns over supply -demand dynamics in the Treasury market seem to be a key factor pushing up Treasury term premia. But we think rising inflation uncertainty among investors has also played a part. The ACM estimate of the 10-year Treasury term premium …
23rd October 2023
Amid the surge in Treasury yields and the fall in global equities, the US dollar seems set (somewhat surprisingly) to end the week broadly unchanged. In our view, the key reason the dollar has failed to rally on the back of what looks in many ways like a …
20th October 2023
US financ ial conditions may soon tighten further, as t he economy slows and credit spreads rise. But, by then, the 10-year Treasury yield may be falling. On Thursday, the 10-year Treasury yield briefly broke through 5% for the first time since 2007. That …
Big banks in the US have reported quite strong earnings in Q3 but, given our pessimistic view of the economy there, we doubt that their stocks will outperform much in the next couple of months. Earnings season started last week in the US, and most major …
19th October 2023
While the global backdrop continues to favour the US dollar, its rally has stalled in recent weeks and we think that, absent a major deterioration in risk sentiment, the greenback will struggle to make significant further gains. So far this month, there …
We think China’s improving economy may help stop the fall in the country’s stock markets, and see them outperform those of the US for a bit. China’s stronger-than-expected Q3 GDP data, released earlier today, seem to have given the Hang Seng Index a small …
18th October 2023
We think equilibrium real policy rates in advanced economies will continue to rise over the next decade or so. That has profound implications for government bond yields and risky asset valuations. Discussions of ‘higher for longer’ generally relate to the …
17th October 2023
Market jitters around the war between Hamas and Israel appear to have stabilised today. But given that the uncertainty on that front is unlikely to fade entirely any time soon, it is worth taking stock of the warning signs evident in commodity markets. …
16th October 2023
After another topsy-turvy week in financial markets, the dollar appears to be back on the front foot. In part, that probably reflects Thursday’s US CPI print, which came in a touch higher than expected. That led to a rebound in US Treasury yields, which …
13th October 2023
We don’t expect a rise in earnings expectations to give the S&P 500 much of a near-term boost, but think the picture is more positive further ahead. Although US earnings season is getting under way, corporate profits probably haven’t always been front of …
We still think the Fed and investors are too pessimistic about inflation in the US returning to target. We expect a continued fall in both core and headline inflation to push down US Treasury yields over at least the next year or so. CPI data out of the …
12th October 2023
The US dollar has risen against most currencies since the start of the year, while most of our estimates of the greenback’s “fair value” are little unchanged. Taken together, this leaves the dollar somewhat overvalued in our assessment. At this point, we …
The fall in Treasury yields since last Friday has pushed corporate bond yields down and equities up in the US. But while we think that Treasuries will keep rallying, we suspect that corporate bonds and equities will fare quite poorly in the near term. …
11th October 2023
We expect a continued paring back of US interest rate expectations to keep pushing long-dated Treasury yields down in coming quarters. But higher term premia may limit those falls in yields. Moves in long-dated Treasury yields have been mixed so far …
10th October 2023
The latest war between Hamas and Israel comes at a tricky juncture for global markets, and could easily increase volatility further. At this point, we think there are three key considerations around the potential market fallout. First, major financial …
9th October 2023
The US stock market has rallied so far today and is on track to bring to an end a spell of weekly losses. Although we think that the proximate cause of this recent weakness – rising bond yields – has largely run its course, we don’t expect the fortunes of …
6th October 2023
Remarkably, the dollar may be about the lose its record streak of weekly gains despite a strong US payrolls report . (See Chart 1.) While the initial reaction to today’s data was another jump in the greenback, it has since given back that gain, and those …
The government bond sell-off over the past three months raises uncomfortable questions around the risks of financial instability and the outlook for fiscal policy. This note takes stock of what has driven the rise in long-term sovereign bond yields and …
A laundry list of explanations has been provided for the surge in the term premia of Treasuries since mid-year, which has accounted for more than ~100bp rise in the 10-year yield based on the ACM model estimate. (See Chart 1.) One explanation that doesn’t …
5th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
While government bond yields have stabilised today, their sharp rises over recent weeks are increasingly concerning. We think there are four key observations to make at this point. First, long-term yields have been rising steadily since mid-July, but have …
This page has been updated with additional analysis since first publication . Japan’s Ministry of Finance may have intervened in support of the yen today after the USD/JPY rate rose through the symbolic 150 level in the wake of the upside surprise in US …
3rd October 2023
We think that the yields of Australian long-term sovereign bonds will fall by a bit less than those of US Treasuries over the next couple of years, even though they’ve moved in lockstep lately. But the picture looks a bit different, to us, in other …
The higher-for-longer narrative took hold over the third quarter, pushing bonds and equities down in most markets. But we doubt that this narrative will last. We expect bond markets to rebound as inflation falls more quickly than widely anticipated. And …
2nd October 2023
While concerns about euro-zone public finances put upward pressure on bond yields there, the outlook for inflation will probably remain the focus for investors . In our view, that means bond yields in the euro-zone will fall by end-2024, but by much less …
29th September 2023
The week is set to end with the US dollar a bit higher against most currencies and the DXY Index just below fresh year-to-date highs. The dollar’s latest gains coincide with yet another week of rising long-term bond yields in the US and elsewhere. But …
The US dollar’s record run of 10 consecutive weekly gains has brought it to its strongest level since last December (see Chart 1), and prompted renewed talk of FX intervention in Asia. We think that market participants have now gone too far in discounting …
28th September 2023
We think the “tech”-heavy sectors of the stock market, which have largely shrugged off the rout in Treasuries, will generally continue to do well. The Treasury market sell-off has continued in earnest this week. The 10-year Treasury and TIPS yields have …
10Y Treasuries have underperformed 2Y Treasuries over recent months, bucking the usual pattern after the final Fed hike (if, as we think, the final hike was in July). But we think the stage is now set for 10Y Treasuries to outperform over the next year or …
27th September 2023
We think that investors’ enthusiasm for artificial intelligence (AI) will grow again next year and inflate a bubble in stock markets. This is just one of the many consequences that AI will have on the economy, in our view, as we discuss at length in our …
26th September 2023
Another set of downbeat business surveys out of the euro-zone and an increasingly cautious tone from ECB officials have put the EUR/USD rate under renewed pressure. But more broadly market participants do not appear particularly downbeat on the prospects …
25th September 2023
Amid the flurry of central bank announcements, the Fed doubling down on “higher for longer” proved to be enough for the greenback to eke out small gains against most other currencies, taking the DXY index to a tenth consecutive weekly rise. While comments …
22nd September 2023
With the Bank of Japan offering little new at its policy meeting earlier today and US Treasury yields surging higher in the wake of the FOMC’s hawkish message earlier in the week, pressure on the yen has ratcheted up further. Unless US policy changes …
With most European G10 central banks now at, or very close to, the ends of their tightening cycles, this note examines where the European G10 currencies stand and how we see the outlook for the main euro cross-rates. In short, we think the Swiss franc …
Despite the hawkish rhetoric from central bankers on both sides of the Atlantic, we still expect most long-dated government bond yields in developed markets (DM) to fall over the next couple of years. After a surprisingly hawkish message from the FOMC …
21st September 2023
Although high “carry” emerging market (EM) currencies have held on to most of their gains during the greenback’s recent rally, we still think the outperformance of these currencies is likely to reverse over the coming quarters amid growing headwinds for …
We remain of the view that investors are overestimating how high the federal funds rate will be over the next couple of years, and that Treasury yields will fall as a result. A lot of discussion around the upcoming FOMC decision has focused on the path …
20th September 2023
The recent rally in oil prices has had only a limited impact on bond and equity markets so far. And we doubt that this will change anytime soon, given our view that the rally will not last much longer and that other factors will continue to play a bigger …
19th September 2023
The latest increase in the 10-year TIPS yield, to a post-Global - Financial-Crisis high of ~2% at one point last week, has barely caused a ripple in the markets. More generally, the influence of “safe” US real government bond yields on other assets has …
18th September 2023
Another week, another rise in the DXY index, which at the time of writing is on track for a ninth consecutive weekly rise. Continued robust activity data in the US and the ECB signalling the end of its rate hiking cycle accounts for the greenback’s …
15th September 2023
We expect China’s equities to fare better than those in the US in the near term. Stronger-than-expected August activity data out of China seem to have given the country’s equities a bit of a boost today. But the gains haven’t been particularly broad …
While policymakers’ efforts to prop up the renminbi and the yen alone are not enough to generate a lasting turnaround , they will probably do enough to buy time until US interest rate expectations and Treasury yields fall back and the dollar depreciates …
We’ve revised up our projections for the S&P 500 and the 10-year Treasury yield, but still expect both to fall a bit by the end of this year. We have also tweaked our forecast for the US dollar. We had been projecting that the S&P 500 would struggle over …
14th September 2023
We think that the ECB is more likely than the Fed to keep rates “higher for longer”, even as the euro-zone heads for a recession. That is one reason why we expect core euro-zone bond yields to fall by less than Treasury yields over the next year or so, …
Although today’s August CPI report was broadly in line with expectations, it provided further evidence that underlying inflation in the US is coming down even as the economy there weathers the Fed’s prior increases in interest rates very well. If that …
13th September 2023
Our view on UK inflation vis-à-vis the US suggest s that bond yields are set to fall back by more in the former , adding downward pressure on sterling. Today’s mixed UK Labour market data prompted only modest falls in Gilt yields and sterling, as it …
12th September 2023
Another step up in the Chinese and Japanese authorities’ efforts to prop up their faltering currencies has given the renminbi and the yen a bit of a boost today. Alone, these measures are unlikely to prove the start of a lasting turnaround: we continue to …
11th September 2023
