A timely reminder about what really drives fixed-income returns and where the opportunities lie. In short: never underestimate the power of income.
Third Quarter Outlook
Western Asset CIO Ken Leech surveys the state of global bond markets, sharing views on growth, inflation and the impact of trade and monetary policy.
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).
What you need to know about environmental, social and governance investing
The Western View
Today, fears dominate the financial news, and we have a slightly more cautious tone overall. Yet despite prevalent fears, we remain bullish on several sectors within fixed income – and continue to see opportunity.
Chart of the Week
Source: Bloomberg, S&P Dow Jones Indices, August 2, 2018. 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
July's employment report showed growth continuing; the Fed sounded optimistic about growth in its latest statement; the UK's rate rise was about normalization, not Brexit; China took some market-based steps in the currency market.
Western Asset examines recent trends in the muni bond market and provides its outlook about conditions ahead.
Quarterly Market Commentary
Optimism for a synchronized global recovery has given way to anxiety over potential EM or European crises. While our viewpoint remains optimistic, taking into account the vagaries of downside risks is crucial.
The May FOMC minutes reaffirmed our view that the Fed’s reaction function will be less hawkish than feared.
Investors define ESG in a variety of ways and have different reasons for adopting ESG.
Figures for April indicate that far from taking off, as many believe, U.S. inflation is stabilizing and could even fall.
Market & Strategy Update
Despite the fairly meaningful downshift in growth and inflation, we still believe that the global recovery will be ongoing but could take a very long time to gain traction – even with the help of continued accommodative monetary policy.
Western Asset sees the US dollar succumbing to the gravitational pull of cyclical and technical forces that should bolster the appeal of non-US currencies; the current dollar strength is not the start of something more permanent.
February’s Market Volatility
In the last two years, market sentiment has swung from pessimistic “secular stagnation” to today’s “reflation trade” enthusiasm. As optimists, we have focused on the higher-yielding spread sectors. But despite market optimism about accelerating growth, the need to protect against unpleasant surprises remains crucial.
Various Federal Reserve (Fed) policymakers expect US inflation to accelerate in 2018, and market analysts generally agree with them. Of course, these same folks predicted rising inflation in previous years as well. It didn’t happen then, and we think it is unlikely to happen in 2018.
The transition from Janet Yellen to Jerome Powell as chair of the Federal Reserve (Fed) is happening at an interesting moment for financial markets and the US economy. Two topics in particular have recently come to the fore of investors’ minds: the potential for an increase in inflation and the current pricing of Fed interest rate hikes. We address both in the final section of this note. However, some context is needed first. Before addressing the topics du jour, we assess Yellen’s record and then provide an outlook for the Fed under Jerome Powell. It is only with the context properly established that we can attempt to adequately address the issues of the day.
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