Interest rate outlook: US GDP of 2.8% expected in 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. We expect US rates to stay range-bound, caught between growing trade worries and above-trend US growth. Core inflation continues to be benign, and we expect it to peak in the next two months at around 2.4%. After this, we see softer rental and service costs driving it below 2%. Assuming no large trade-driven shocks, US growth is likely to remain above trend for the rest of the year. It should be supported by increased energy sector capital expenditures, strong job growth and strong consumption. We expect 2018 gross domestic product growth of around 2.8%, 1% above the long-term sustainable trend. The risk of tighter global financial conditions due to trade-related tensions and the possibility of further tariffs in the next few months may cause asset price volatility. Treasury prices may benefit if volatility picks up.

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Interest rate outlook: Strong US GDP growth, trade worries may keep rates range-bound in 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. We expect US rates to stay range-bound due to growing trade worries and above-trend growth. Assuming no large trade-driven shocks, US growth is likely to remain supported by stronger energy sector capital expenditures, strong job growth and consumption. We expect 2018 gross domestic product (GDP) growth of around 2.8%, one percent above our estimate of the long-term sustainable trend. Core inflation continues to be benign, and we expect it to peak in the next two months at around 2.3%.

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Five risks that could affect fixed income markets

Macro and credit fundamentals look strong, but greater volatility appears likely

Rob WaldnerTime to read: 5 min

Invesco Fixed Income is positive on fundamentals for the rest of this year. Global growth is solid and inflation is tame. As central banks have pivoted away from stimulus, tighter financial conditions have hurt risky assets. But major central bank policies are still generally easy — we expect the Federal Reserve to tighten gradually, and the runway for other central banks to normalize policy is still long. Nevertheless, political uncertainty, trade tensions and a sell-off in emerging markets have challenged investors in recent months. We expect these factors to generate further volatility and believe caution is warranted. However, we believe greater volatility will generate new opportunities for fixed income investors against a backdrop of solid macro and credit fundamentals. Below are five risks we are monitoring.

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Interest rate outlook: US inflation should peak this summer, resulting in one more 2018 hike and then a pause

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US:

Neutral. US growth remains strong, accelerating in the second quarter versus the first quarter’s lackluster 2.2% performance.1 We expect 2018 growth of around 2.8%, with strong contributions from capital expenditures and consumption. Core inflation continues to be benign, and we see it peaking in the next two months at around 2.2%. After that, softer rental and service costs should drive it back below 2%. In our view, the US Federal Reserve will hike one more time this year before pausing in response to declining inflation. Strong growth and lower-than-expected inflation point to a 10-year Treasury yield of around 3%. However, supply dynamics will likely begin to shift in the third quarter as the Treasury begins to issue more long-term debt. This may pressure the Treasury yield curve steeper.

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Interest rate outlook: Volatility in US rates is likely to persist

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US:

Neutral. We expect increased Treasury supply to begin pressuring yields higher into year-end though fundamentals are supportive of lower yields. Inflation is likely to begin softening in the second half of 2018, and we believe US growth expectations have peaked. Volatility in US rates is likely to persist near-term as geopolitical concerns (such as in Europe, North Korea and the Chinese trade negotiations) remain in the spotlight. As a result, we are neutral on US rates.

Europe:

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