Assessing the market implications of an SDR allocation

We think the IMF’s anticipated $650bn Special Drawing Rights (SDR) allocation is unlikely to have a major market impact, although it might provide countries with falling exchange rates and low levels of reserves – such as Argentina and Turkey – some scope to slow the depreciation of their currencies.
Thomas Mathews Markets Economist
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Global Markets Outlook

We don’t expect the rally in bond markets to continue

While long-dated government bond yields have plummeted in recent months, we suspect that high inflation and the prospect of tighter monetary policy will see them turn a corner before long. We forecast long-term yields to rise across most major economies, especially in the US, where inflationary pressures look particularly strong. Higher yields may also help limit the upside for risky assets, such as equities and corporate bonds. Their valuations already appear fairly stretched in many cases. And when it comes to equities, an extremely strong rebound in corporate earnings already appears to be discounted. As a result, we forecast only small gains in equities across both DMs and EMs, and expect credit spreads to narrow only a little, if at all, from here.

30 July 2021

Global Markets Update

We doubt global saving will stop US yields from rising

In the early 2000s, a ‘glut’ of global saving may have helped restrain rises in long-term US bond yields, even as investors began to discount tighter monetary policy. We don’t think that similar factors explain the latest fall in yields, nor do we expect them to prevent yields from rising over the next couple of years.

28 July 2021

Global Markets Update

We expect E-Z “peripheral” spreads to remain low

While we no longer expect peripheral spreads to narrow this year, we still think that they will remain close to their current levels, which are close to the lowest since the Global Financial Crisis.

23 July 2021

More from Thomas Mathews

Global Markets Update

Oil prices, inflation compensation and Treasury yields

Although oil prices and inflation compensation have historically moved in lockstep, we don’t think our projection that oil prices will fall over the next couple of years is inconsistent with our forecast for long-term Treasury yields to rise quite a bit.

2 July 2021

Capital Daily

Stress tests, the financial sector and bond yields

We think the positive results from the Federal Reserve’s stress tests remove an obstacle to higher bond yields, while reinforcing the positive outlook for the financial sector.

29 June 2021

EM Markets Chart Book

We expect generally higher long-term EM bond yields

We think investors may be overestimating how much monetary policy tightening is on the way in emerging markets (EMs), but still expect long-dated EM government bond yields to rise a bit from here.

29 June 2021
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