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Improving sentiment towards Chinese equities has sparked a further rebound over the past month, with stocks there having generally outperformed those elsewhere over this period. While we continue to see near-term upside, we think they will ultimately …
17th May 2024
For much of the past year, the dollar has strengthened against emerging market (EM) currencies even as EM sovereign dollar bond spreads have narrowed. One way or another, that is unlikely to last. One relatively unusual feature of the strengthening of the …
16th May 2024
We held an online Drop-In session today to discuss the Biden administration’s new tariffs on goods from China. (See a recording here .) This Update answers several of the questions that we received about the direct effects of the tariffs and what they say …
15th May 2024
Although Japan’s equities and currency have generally moved in tandem in recent weeks, we think the historical inverse relationship between the two will reassert itself before long. We expect a stronger yen to become a headwind for Japan’s equities in the …
10th May 2024
Despite the correction in equity markets over the past month, risk premia generally remain low across financial markets. While we expect this to continue as an AI-driven bubble inflates in equity markets, this Update explores four areas that could …
3rd May 2024
We think the recent recovery in the share prices of some of the ‘Magnificent 7’ is a sign that the earlier pull-back in their collective performance wasn’t a harbinger of a far bigger correction in the NASDAQ 100. On the contrary, we suspect that index …
26th April 2024
The US dollar would have to appreciate a lot further before having significant effects on the global economy and financial system. A key risk to watch for is the widening policy divergence between the US and Asia leading to a major depreciation in the …
25th April 2024
The risk premia on Turkish assets are now low relative to the past decade or so. We think that will remain the case over the coming quarters, given the positive global risk-on attitude and the ongoing shift to traditional macroeconomic policy. Even so, …
18th April 2024
We forecast that bond yields will fall back in most developed markets (DMs) over the next year or so, as central banks generally embark on bigger easing cycles than investors currently expect. But given our view that the Federal Reserve faces more hurdles …
Despite yet another hotter-than-expected US CPI release, there are few signs in bond markets that long-term inflation expectations are de-anchoring. That supports our base case that US Treasury yields will fall back later this year, even if it also …
11th April 2024
We expect the spreads between the yield of the 10-year German bund and its ‘riskier’ counterparts in other euro-zone economies to narrow only a little further this year. If anything, we think that the fiscal outlooks in France and Italy mean that the …
27th March 2024
We think Emerging Market (EM) dollar bond yields will fall in general by the end of this year, thanks both to lower US Treasury yields and, in some cases, narrower spreads. But the sovereign dollar bonds of some EM economies, such as South Africa and …
20th March 2024
Credit spreads aren’t bound to fall further if a bubble continues to inflate in the stock market, judging by what happened in the US in the second half of the 1990s. Admittedly, the option-adjusted spreads (OAS) over underlying Treasuries of ICE BofA’s …
19th March 2024
The past few months have seen risk premia compress across most financial markets, and stress across core financial markets appears lower than at any point since mid-2021. While some lingering risks remain, we think that an emerging bubble in equity …
15th March 2024
Given our view about monetary policy, we expect government bond yields in some developed markets such as the UK to fall markedly this year. In some other places, like the euro-zone, we doubt central banks will have much impact on yields. And we see scope …
7th March 2024
We are revising up our end-2024 and end-2025 forecasts for the 10-year Treasury yield by 25bp, to 4%. This reflects recent changes to our projections for the federal funds rate . Nonetheless, our new forecast for the 10-year yield still implies a small …
28th February 2024
Unlike most bubbles, this one hasn’t been accompanied, at least so far, by obvious signs of high and rising leverage. On the other hand, the share of funds invested in ‘passive’ products is now much higher than in prior bubbles. This Update considers how …
20th February 2024
We expect India’s stocks, bonds, and currency to rally over the remainder of this year. It’s been a strong start to the year for India’s financial markets. The MSCI India Index of the country’s equities has been the strongest performer of MSCI’s large …
16th February 2024
US corporate credit spreads have continued to shrink even as bankruptcies have soared but, while they are now fairly narrow, we think there is still some scope for them to tighten further over the remainder of this year. It hasn’t been a great start to …
8th February 2024
While the overall incidence of sovereign debt distress in the emerging world has fallen back since last year, sovereign debt distress in frontier markets hasn’t. And, if anything, things have taken a turn for the worse in recent weeks in some of the more …
7th February 2024
We think the recent falls in long-dated government bond yields across developed market (DM) economies will extend over the remainder of this year, as central banks generally cut by more than investors currently expect. We project most of those yields to …
29th January 2024
We think the “tech” sectors of China’s stock market are the best prospects to lead a continued rebound in it, even if we doubt they’ll fare as well as many of their global tech peers over the next couple of years. China’s benchmark equity indices have …
26th January 2024
We project decent near-term gains in China’s equities, think long-dated CGB yields will finish the year around their current levels, and expect the renminbi to rally against the US dollar. China’s equity, bond, and FX markets were on the back foot …
19th January 2024
Although bonds and equities have started the year on the back foot, which may continue in the near term, we think they’ll fare better over the year as a whole. We project especially large gains for equities. Any renewed hopes for a “soft landing” prompted …
8th January 2024
We think the 10-year Japanese government bond (JGB) yield will rise over 2024 as the Bank of Japan (BoJ) lifts its policy rate early next year and c onstraints on the JGB market ease . And while that may exert some upward pressure on bond yields in other …
20th December 2023
We think that sovereign bond yields in most major economies will generally reach their troughs around the same time over the next year or so. But with the Bank of Japan seemingly set to buck the trend once again, yields there may be an exception. The …
6th December 2023
We expect the Treasury yield curve to “disinvert” in 2024, as we think the Fed will cut rates by more than investors expect and term premia will remain at least as high as they are now. The spread between the yields of 10-year and 2-year Treasuries has …
4th December 2023
We think that long-term sovereign bond yields in New Zealand – which are currently among the highest in the developed world – will fall back to similar levels as those elsewhere over the next couple of years. Bonds in New Zealand have joined in the …
30th November 2023
We think the yields of long-dated local-currency government bonds in Asia will generally fall further by the end of next year, and that most regional currencies will continue to make ground against the US dollar. But we suspect some of the intra-regional …
23rd November 2023
We continue to forecast a small fall in euro-zone yield spreads over Bunds in the next year or so. However, rising risks to the upside in recent months and differences in fiscal positions between countries may mean that the relative picture for some …
22nd November 2023
With a lot of pessimism seemingly already priced in to China’s “risky” assets, we suspect a thawing in US/China relations could give them a boost. But we think their longer-term outlook is less rosy. Meanwhile, we don’t think US/China tensions will have …
17th November 2023
Growing external and domestic headwinds suggest to us that Brazilian financial markets will come under pressure over the short term and are unlikely to resume their outperformance beyond that. Brazilian assets have fared relatively well amid the ongoing …
15th November 2023
We think that bonds in Emerging Markets (EMs) will struggle in the next couple of months. Further ahead, though, we expect their yields to fall, as both “risk-free” rates and spreads drop. The yields of EM local-currency and dollar-denominated bonds have …
Even though we expect the S&P 500 to end 2024 at a much higher level than it is now, we doubt it will build on its recent gains over the coming months given the outlook for the economy. The story for much of this year has been the surprising resilience of …
10th November 2023
We think the Bank of Japan’s continued steps towards policy normalisation are consistent with somewhat higher JGB yields and a significant rebound in the yen over the coming quarters. To recap, the BoJ made another tweak to its Yield Curve Control (YCC) …
2nd November 2023
In line with our upwardly revised forecasts for the 10-year US Treasury yield, we’ve raised our projections for 10-year government bond yields in most other developed market economies. But we still expect those yields to fall, in general, by the end of …
27th October 2023
We think the Chilean peso is poised for a rebound in 2024 as the headwinds from the narrowing interest rate differential and the terms of trade deterioration reverse. The Chilean peso has underperformed nearly all other major emerging market currencies …
26th October 2023
We still expect the 10-year Treasury yield to fall in the coming quarters. But we’ve revised up our projections for that yield from now to end of 2025, and now think it will reach its cyclical low in 2024. There are two key reasons why we have pushed up …
19th October 2023
We think the macroeconomic environment will continue to play the key role in the outlook for emerging markets (EM) dollar-denominated sovereign bonds this year and next. Despite country-specific risks, we expect the yields of most of those bonds to fall …
13th October 2023
Estimates suggest that the term premium of US 10-year Treasuries has bounced back to positive territory. We think that this can be at least partly explained by demand and supply factors. And we suspect that term premia might rise a bit more, even though …
12th October 2023
While we think the risk of a material increase in euro-zone “peripheral” spreads has risen, our central forecast remains that they will end 2024 a bit below their current levels. Last week, long-dated euro-zone peripheral bond yields reached highs not …
5th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
Although the 10-year Treasury yield rose further to a post-Global-Financial-Crisis high of ~4.5% in the wake of this week’s FOMC meeting, we continue to forecast that it will drop back to 3.75% by the end of this year and to 3.25% by the end of next year. …
22nd September 2023
We expect long-dated government bond yields in most developed market (DM) economies to fall over the remainder of this year and next, as central banks shift focus to monetary easing. But, in some cases, we now predict those falls to be smaller than we had …
21st September 2023
Given our dovish view of monetary policy in Emerging Markets (EMs) – and our increasingly less bearish view of the US economy – we think that EM local-currency government bond yields will fall across the board in the next couple of years, particularly in …
14th September 2023
We’ve revised up our projections for the S&P 500 and the 10-year Treasury yield, but still expect both to fall a bit by the end of this year. We have also tweaked our forecast for the US dollar. We had been projecting that the S&P 500 would struggle over …
Market implied rates suggest that investors expect inflation to normalise in the US and Europe in the next couple of years. While we share that view, we think they are overestimating the level of policy rates required to achieve inflation targets. As a …
8th September 2023
We think there is ample scope for the US stock market to perform strongly in 2024 and 2025. Admittedly, this year’s rally in the S&P 500 hasn’t had much to do with expectations of faster growth in earnings per share (EPS). Instead, it seems mainly to …
31st August 2023
Gilt yields and sterling have fallen from their cycle highs over the past month or so, and we think the worsening economic growth outlook in the UK and elsewhere mean that this trend will continue over at least the next couple of quarters. Although …
24th August 2023
We think the 10-year Treasury yield will end the year well below its current level. The sell-off in Treasuries seems to have abated somewhat today. But they haven’t had too much relief: the 10-year yield still isn’t that far below the fresh cycle peak it …
23rd August 2023
