Assessing the outlook for EM monetary policy & LC bonds

While we expect the yields of 10-year emerging market (EM) local-currency (LC) government bonds to increase as the US 10-year Treasury yield resumes its rise, we think increases in yields will generally be smaller than in the US. This reflects our view that most EM central banks will tighten policy more slowly than investors currently anticipate.
Franziska Palmas 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

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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 Franziska Palmas

Global Markets Update

Earnings expectations and the outlook for DM equities

We think that there is more scope for earnings expectations to improve outside, than inside, the US. In both cases, though, we are not anticipating upward revisions on the scale seen over the past year.

2 July 2021

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Assessing the risks to our positive view of E-Z peripheral bonds

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28 June 2021

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BoE policy may ultimately lead to a steeper UK yield curve

The yield of 10-year Gilts fell after the Bank of England kept its policy settings and forward guidance unchanged at its meeting today. However, we suspect that if the Bank continues to look through strong growth and activity data, investors may start to anticipate higher inflation further ahead in time, causing long-term Gilt yields to rise and the yield curve to steepen.

24 June 2021
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