The bond market has already priced in cuts later this year. Though possibly ahead of itself in terms of timing, the market’s call on the direction of rates looks right, notes Western Asset’s John Bellows.
Despite the market spillover from developed market rate volatility, Western Asset does not view the recent market rout as sufficient basis to steer away from Emerging Market debt (EMD).
The implications for trade, how Mexico may respond, and what it means for Mexican rates and asset prices.
Income and global credit are becoming mainstays of fixed-income investing – an actively managed, unconstrained approach can be a valuable tool to face today's rapidly-changing market conditions.
The bond market will be looking for any indirect impacts from the tariffs, which could stem from changes in financial conditions or changes to the global growth outlook.
Chart of the Week
Chart courtesy of ClearBridge Investments. Source: Bloomberg, as of 5/31/19. Returns are cumulative and based on price movement only, and do not include the reinvestment of dividends. +101% for S&P 500 measures 10/09/02-10/12/2007 and +218% for MSCI ACWI ex-U.S. measures 3/12/03-10/31/07. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
Chart of the Week
China’s latest tariffs focus on U.S. agricultural exports; financial markets are pricing in at least one Fed rate cut this year; U.S. consumers’ debt load reached $13.67 trillion, with student debt outstripping auto loans.
Western Asset examines recent trends in the muni bond market and provides its outlook about conditions ahead.
German bunds have become a lightning rod for market anxiety; Western Asset's Gordon Brown argues that too much bad news is built into current pricing, obscuring some key long-term macro drivers.
Q2 Market Commentary
We remain cautiously optimistic that the Fed will see the light, that Brexit will move in a benign fashion, and that tariff disputes will subside. Spread sectors and duration remain our focus.
Despite the downbeat outlook, we believe rates still have appeal at current levels, with additional interest rate cuts possible to counter the country's growth challenges.
Last-minute issues have complicated the negotiations taking place in Washington and Beijing.
Enthusiasm for ESG has notably accelerated over the past two years, as more and more investors embrace the promise of a future that is not only wealthier but also healthier and cleaner.
Q2 Market & Strategy Update
While the global growth rate has moderated and is still very modest, we expect it to be slightly better than 3.5% for the year. We view the recent inversion of a portion of the yield curve as a yellow warning sign rather than a flashing red signal of imminent recession.
Oil prices have held up well despite data that suggest global growth is weakening.
The assumptions behind the curve
Municipal bond investors can be fickle, leading to weakness in munis, but we believe today's muni markets have priced in a large surprise in the macro backdrop, which is not our base case.
China's strong GDP performance in Q1 was a surprise to the upside. But is the economy enjoying a longer-term turnaround?
Throughout the bumpy ride of Q3 2018, we maintained our convictions with an overall bullish bias which turned out to be justified in the rapid reversal that followed. We think the macro backdrop is supportive of the credit cycle; while long by historical standards, we believe it will endure.
Is the latest yield curve inversion a cause for concern or a false alarm?
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