Interest rate outlook: US Treasuries likely to be stuck between better-than-expected growth and a dovish Fed

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral.

In the near term, we expect Treasury yields to be stuck between better-than-expected growth and a dovish Federal Reserve. The Fed stated it will remain patient when considering future hikes and has noted concerns about a lack of persistent inflation. Over the longer term, we expect growth and inflation data to support a hike in June. While we continue to believe peak US growth is behind us, we expect it to remain above-potential through the first half of 2019. Inflation will likely remain benign in 2019, although labor costs may continue to accelerate. This could allow the Fed to continue its gradual path of policy normalization after a March pause.

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Interest rate outlook: US interest rates will likely remain range-bound

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral.

US interest rates should continue to be range-bound amid moderating growth and expected increases in US Treasury supply. We believe the market will begin to price in a more moderate growth outlook in 2019 as the effects of tax stimulus wane and tighter Federal Reserve (Fed) policy begins to bite. On the other hand, Treasury supply is expected to remain elevated and Fed asset purchases are expected to decline year-over-year. We expect inflation to remain benign — softening into year-end on weaker rental and services inflation. Any re-escalation of the trade conflict would likely create Treasury market volatility.

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Interest rate outlook: US markets may price in slower growth in the second half of 2019

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 4 min

US: Neutral.

We expect US interest rates to remain range-bound due to moderating gross domestic product (GDP) growth and looming US Treasury supply. Growth over the next few quarters will likely be driven by consumption and capital expenditures supported by US tax reform. We believe the market will begin to price in a less positive growth picture in 2019, as the effects of tax stimulus wear off and the impact of tighter Federal Reserve (Fed) policy begins to take hold. We could see below-trend growth in the second half of 2019. Additionally, core US inflation has begun to soften, and in the coming months we expect softer rental and service inflation to drive core consumer price inflation below 2% (excluding tariff-related price increases). In addition, US Treasury supply has continued to increase in 2018 while Fed purchases have declined. This combination has led to increased volatility in the Treasury market.

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Interest rate outlook: US core inflation may drop below 2% barring tariff-related shocks

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. With growing trade worries and above-trend growth, we expect US rates to stay range-bound. Core US inflation slowed in August, and we believe it will continue to slow for the rest of the year. Going forward, we expect softer rental and service costs to drive core consumer price inflation below 2%, excluding tariff-related price increases. Absent any major trade-driven shocks, US growth is likely to remain above-trend for the rest of the year, supported by stronger energy sector capital expenditures, increased job growth and consumption. We continue to see 2018 gross domestic product (GDP) growth reaching around 2.8%, 1% above the long-term sustainable trend. There is a risk of tighter global financial conditions due to trade-related tensions and additional tariffs in the next few months — this may cause asset price volatility that could ultimately benefit US Treasury prices.

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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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