• Home
  • News
    • People moves
    • Africa
    • Asia
    • Australia
    • Canada
    • Caribbean
    • Domicile
    • Europe
    • Latin America
    • North America
    • Middle East
    • US
    • US
    • UK
  • Products
    • Funds
    • Pensions
    • Platforms
    • Insurance
    • Investments
    • Private Banking
    • Citizenship
    • Taxation
  • Fintech
  • Regulation
  • ESG
  • Expats
  • In Depth
  • Special Reports
  • Directory
  • Video
  • Advertise with us
  • Directory
  • Events
  • European Fund Selector
  • Newsletters
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
  • Advertise with us
  • Directory
  • Events
    • Upcoming events
      event logo
      International Investment Nordic Forum 2021

      International Investment is delighted to announce the 2021 International Investment Nordic Forum which will take place on Tuesday March 9, at 9am (GMT). This curated virtual event will be broadcast live and will feature a series of fund manager interviews and presentations, as well as interviews with some of the Nordic regions top fund selectors.

      • Date: 09 Mar 2021
      • ONLINE, ONLINE
      View all events
  • European Fund Selector
International Investment
International Investment

Sponsored by

Sharing Alpha
  • Home
  • News
  • Products
  • Fintech
  • Regulation
  • ESG
  • Expats
  • In Depth
  • Special Reports
  • Video
  • Fixed Income

Optimistic Fed, not bad for bonds

Optimistic Fed, not bad for bonds
  • Adrien Paredes-Vanheule
  • 28 July 2016
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  

Robert Tipp, chief investment officer at PGIM Fixed Income discusses the US Federal Reserve meeting decision yesterday.

The statement remarked on improvements in the US economy and maintained their confidence that inflation, although low, would rise towards their target. Although rates were held steady, one voter was so convinced that a hike was needed that she did not vote for the unchanged decision and dissented.

Related articles

  • Fed rates hike getting closer says GS' Singer
  • The buying opportunity in US government bonds
  • Investment survival after a rate collapse
  • From negative policy rates to yield curve control - what's next?

A couple quarters of weak GDP in the US, and Brexit leading off a very long and growing list of international ‘issues’ piling up alongside an at best tepid global backdrop, were not topics worthy of note in the statement.

Why the relatively optimistic take? They want to keep the door open so they can hike rates later in the year—just in case things heat up and hikes become clearly warranted.

Given where they left off at the June meeting, perhaps that is to be expected: Most participants back in June expected to hike rates one or two times this year—so they have to keep the window open, keep a stiff upper lip, despite the clear, present, and numerous risks on the horizon.

Will an optimistic Fed inclined towards hiking rates this year, at the end of the day, be bad for bonds? We think not, and the market appears to agree; since the announcement yesterday the US Treasury curve has rallied.

We see a few probable drivers for the positive reaction. One is that the market may see the Fed’s erring on the bright side as raising the odds that they end up being too hawkish, pushing the US into an economic slowdown, and pushing inflation even further below target, which could ultimately depress US Treasury yields.

Perhaps slightly more apt in our view, there appears to be strong demand from abroad for US fixed income products, which are quite high yielding in the international scheme of things.

Some investors may have taken a break from their buying to wait out the Fed, and now that the Fed has at least held its fire, it is back to ‘game on.’

More fundamentally, however, today’s moves aside, we see the probability that the current level of rates is actually near fair value—and not overvalued—as quite high. The economy has changed over the years, and along with it, the neutral level of rates may have dropped significantly.

In keeping with that view, the clear economic evidence that hikes are needed continues to elude the Fed, and the yield curve remains correspondingly low. Fundamentals may have changed, and we may be near equilibrium levels.

Where to from here? With the Fed either slow-go or no-go, in our view the outlook for US fixed income remains solid. The muted global backdrop, characterized by low inflation and an imbalance of down-side risks, is likely to keep US yields low and range bound for the foreseeable future.

Additionally, we see a range of opportunities for adding value in the spread sectors, from structured products, emerging markets debt, and municipals to investment grade and high yield corporate bonds. So whether the Fed is able to get a clear shot at a hike this year or not, we expect bonds to hold their ground over the intermediate-to-long term—especially the higher-yielding sectors.

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Fixed Income
  • United States Federal Reserve
  • Fixed Income
  • United States of America

More on Fixed Income

Investors Trust launches fixed-income plans for int'l investors

  • Fixed Income
  • 12 June 2020
Insight Investment introduces new ESG risk rating for fixed income investors

  • ESG
  • 09 June 2020
Eaton Vance appoints business development director for Germany and Austria

  • People Moves
  • 02 June 2020
European ETFs survive the redemption test, finds report

  • Fixed Income
  • 27 May 2020
AMX adds two to Irish operations

  • Alternative
  • 18 March 2020
Back to Top

Most read

EU removes Barbados from blacklist of 'non-cooperative' jurisdictions
EU removes Barbados from blacklist of 'non-cooperative' jurisdictions
Global UHNWI population to grow by 27% over the next five years: Knight Frank
Global UHNWI population to grow by 27% over the next five years: Knight Frank
Amati Global Investors launches strategic metals fund
Amati Global Investors launches strategic metals fund
Aviva announces exit from Turkey
Aviva announces exit from Turkey
Aviva approves sale of its French business for €3.2bn
Aviva approves sale of its French business for €3.2bn
  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading