Interest rate outlook: Falling US inflation may become a Fed concern by late 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US:

Neutral. Inflation trends are showing no signs of a significant pickup, and economic data over the coming months should support a Federal Reserve (Fed) rate hike in June (currently expected by the market). We think slowing inflation will become a concern for the Fed later in the year, especially as the housing component slows. Over the longer term, we believe risk/reward dynamics favor US Treasuries, especially if geopolitical uncertainty begins to increase. However, with the market correction pushing yields higher in April, we remain neutral on US rates in the near term.

Europe:

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Interest rate outlook: Weaker-than-expected data lower US inflation expectations

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US:

Neutral. Compared to the start of the year, short-term growth and inflation expectations are lower due to weaker-than-expected consumption data and easing inflation. We expect the US Federal Reserve to hike rates twice more this year following its latest increase of 25 basis points in March, with a risk of an additional hike if inflation accelerates (not our base case). We continue to expect above-trend growth at around 2.75% and inflation to remain moderate at around 1.9%. We expect lower inflation expectations to reduce Treasury market volatility in the near term.

Europe:

Underweight. European Central Bank (ECB) President Mario Draghi maintained

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Interest rate outlook: Why we expect Treasury rates to stay contained

Invesco Fixed Income shares its views on rates around the world

Interest rate outlook: Why we expect Treasury rates to stay containedTime to read: 3 min

US:

Strengthening inflation data have driven US yields higher in recent weeks. We expect inflation to remain on the higher side in the coming months due to statistical comparisons to a low base, but we also believe this effect should fade. Nevertheless, we have revised our 2018 expectation for US Federal Reserve (Fed) interest rate hikes from two to three due to the price pick-up. Continued broad-based price pressures could lead the Fed to hike four times this year, but this is not our base case. At this point, we do not believe the market is worried that the Fed is letting inflation get away from it (which could cause markets to overreact, driving rates higher and creating a financial shock). While uncertainty over inflation will likely keep rates volatile for now, low non-US government yields

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Interest rate outlook: Above-trend growth could cause US inflation later in 2018

Invesco Fixed Income shares its views on rates around the world

Time to read: 4 min

US:

We expect US interest rates to be range-bound in the first half of 2018, but with a risk of higher yields in the second half. Our rates view is driven by our analysis of growth, inflation and monetary policy in the US and globally. Our models estimate that US growth approached a near cycle high at just above 3% in the fourth quarter of 2017. Growth should remain strongly above trend at 2.75%3 in 2018.

Inflation is likely to remain low for the first half of this year. Headwinds facing the housing and auto markets could

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What does market volatility mean for fixed income?

As inflation fears roil the markets, we share our outlook for global bond markets

Time to read: 4 min

Market expectations of inflation have risen in recent days, after signs of wage growth — often seen as a harbinger of inflation — appeared in the January jobs report. We at Invesco Fixed Income believe investor concerns that inflation is finally showing signs of life have helped drive interest rates higher and impacted credit markets, where worries over higher interest rates (and their potential impact on companies) have caused declines in stock markets and other risky assets.1

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