U.S. Economy: December Follow-Through

Mid Week Bond Update

U.S. Economy: December Follow-Through

For the U.S., December showed a strong finish to a year of growth – at least for job seekers.

Despite concerns prompted by flattening within the U.S. Treasury yield curve, the U.S. economy looks to have ended 2018 on an upbeat note – at least from the point of view of job-seekers.

December private-sector hiring came in strongly above expectations at a seasonally-adjusted 301k after an upwardly-revised 173k for November.  Factoring out the volatile construction and retail sectors, the rise was 239k for December – still strongly above trend for the past five years.

Seller's Market: December's Private-Sector Hiring Continued Strong

Chart courtesy of Western Asset Management.  Source: Bureau of Labor Statistics as of 12/31/2018. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


These figures suggest the U.S. economy isn’t yet primed to roll over in the face of tariff uncertainty and  political stalemates.  In fact, reassuring language in recent Fed speeches may suggest that we’re in for a soft-landing resumption of on-trend growth rather than a slide into recession.

As for the shape of the yield curve, the segment between 1- and 3-year maturities now appears inverted. However, the curve retains its positive slope from that point all the way up to the 30-year, whose yield appears to be rebounding, crossing 3.0% to the upside as of January 9, 2019.  The significance of a concavity on the shorter-end, if any, has not yet leaked into popular discourse.

On the rise:  Emerging Market Debt

Investors in EM debt had a painful 2018, but the rapid turnaround in performance since late November 2018 seems to have legs. The news has been particularly good for U.S. dollar investors in U.S. dollar-denominated EM debt; the Bloomberg Barclays EM US Dollar Aggregate Index rose 2.98% between November 27, 2018 and January 7 of this year. Investors in overall hard-currency EM debt had similar results, for the same period, of 2.86%.  But the best performance for U.S. dollar investors was turned in by EM local-currency government debt. Since its low on September 6, 2018, the related index1 rose 6.85% for the period ended January 7, 2018.

Yields for these categories are particularly strong. The U.S. dollar index showed a 5.94% yield-to-worst (YTW) as of January 7; the hard-currency index showed a 5.46% YTW as of the same date; the local-currency government index YTW came in at 4.93%. Of course, these head-turning numbers are admittedly for very short-term intervals and capture data from interim lows. Nonetheless, they seem to suggest that attention should be paid.

On the slide: World Bank Projections for global growth

Under a gloomy photo and the headline “Storm Clouds are Brewing For the Global Economy”, the World Bank lowered its estimates and forecasts for global economic growth by -0.1% to 2.9% and 2.8% for 2019 and 2020. For growth in Emerging Markets and Developing Economies (EMDE)2, the reductions were ‑0.3, -0.5, and -0.2 percentage points for 2018, 2019 and 2020 respectively.

The changes appear small, but the warnings were dire, including talk of loss of momentum, increasing downside risks, trade tensions and growing levels of debt. World Bank estimates are taken seriously by economists and governments alike and can create their own reality of reductions of lending, commodity prices and government policies.

But readers should keep in mind that the headline growth figures for the EMDE group, even after the downgrade, still remain at 4.2% and 4.5% for 2019 and 2020 respectively.  Which is nobody’s definition of global recession.




Unless otherwise indicated, all data Source Bloombger, as of January 8, 2018.


1 Bloomberg Barclays EM Local Currency Government Total Return Index

2 Emerging market and developing economies (EMDEs) Based on the classification of countries used by the IMF in its World Economic Outlook (WEO), 150 economies are classified as EMDEs, including 10 members of the G20  The definition of EMDEs can vary depending on the criteria used by different organizations and market participants (e.g., size of economy, level of per capita income, equity and debt market capitalization, etc.). 


Emerging markets (EM) are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.






Important Information


All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA.  Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People's Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC's commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC's commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia and New Zealand:

This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827).  The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.