Panoramic Weekly: Markets, not Fed, go crazy

Oct 18 08:10 2018 Print This Article

Global financial markets seemed to regain sanity over the past five trading days as they reverted to the typical negative correlation usually seen between stocks and bonds: investors snapped up traditionally safer government debt as concerns on the effect of rising rates over corporate profits mounted, dragging down leading equity indices. This followed a period in early October in which both equity and bond prices sank, leading US President Trump to blame the Federal Reserve (Fed) for going crazy by lifting rates too soon, hurting the economy – for more detail, watch “The Fed vs Trump – a tale from NY.”

Bond markets pared recent losses as US data continued to be unconvincing and despite a strong start of the US earnings season. Both inflation and the well-known Michigan consumer sentiment index came in below expectations, while the country’s budget deficit rose to $779bn in fiscal 2018, its widest since 2012. The Fed’s favourite measure of inflation expectations, the 5-year forward breakeven inflation rate, fell to 2.1%, still shy of recovering to the 2.2% level it lost in 2014 and which it has surpassed only once in May this year. The dollar fell.

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Bond Vigilantes

Bond Vigilantes is here to share the writers views on the things that matter to bond investors – inflation, interest rates and the global economy – as well as to talk about the bond markets themselves. Over the past few years, they have covered topics like value in high yield bonds, the outlook for emerging market debt, and new developments in the inflation-linked bond markets. Being a good bond vigilante should also be about identifying deteriorating trends in corporate behaviour, as well as that of governments.

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