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As the Federal Reserve plots its actions and communications strategy for the gradual normalization of monetary policy, fixed-income investors face the challenge of anticipating the future course of interest rates. Economic growth influences interest rates The long-term “equilibrium” interest rate of an economy is intimately linked to the economy’s overall growth potential when it is
Ever since the topic of stimulus tapering was aired in June, the Fed has hastened to clarify its message: We’ll taper if and only if the data argues for tapering. Generally unimpressed with the U.S. recovery since then, the tough talk on tapering has noticeably cooled. The gradual reduction of the Fed’s bond-buying program is
The global economy is finding new engines of growth in the developed markets. U.K. policy mix has improved In the United Kingdom, we see a balance of fiscal retrenchment and stimulative monetary policy, which is lending support to key sectors such as financials. This has contributed to the momentum of the country’s overall recovery as
Since the mid 2000s, the rise of the Chinese consumer has transformed global luxury markets, opening new horizons for European companies. The challenge is to harness the buying power of China’s rapidly growing upper-middle and more affluent classes.
U.S. GDP growth during the recovery, underway since the middle of 2009, is among the weakest in recent history. It has averaged a little over 2% for the past four years, well below the previous long-term trends of 3% to 3.5%. Amid this slow recovery, investors have been looking for the economy to shift to
Washington’s off-again, on-again debate about the tax exemption of municipal bonds appears to be off again as lawmakers grapple with budget and debt issues. Proposals to change the tax treatment of municipal bonds could resurface again during the congressional elections in late 2014.
One of the decision points that the Fed will encounter as it considers tapering its quantitative easing (QE) measures will be the relative strength of the housing market. One factor influencing this strength is mortgage rates. The interest rates on long-term (30-year) loans have risen above 4% on the back of the move to higher
Although rising interest rates will likely taper demand for dividend-paying stocks, we have seen a significant expansion in the universe of companies with the ability and willingness to pay a dividend. The high-yielding sectors — the so-called “bond proxies” — particularly REITs and utilities stocks, will be most affected by initial interest-rate moves. Looking ahead,
Given our relatively pessimistic outlook for commodities, we have favored a modest underweight stance for this asset class. Commodities generally behave with more momentum than reversion, and entered the current quarter coming off a very weak second quarter. Beyond the negative momentum, the weakness in emerging markets represents a very problematic signal for commodities. While