Interest rate outlook: Global growth could push US yields higher

Invesco Fixed Income shares its views of rates around the world

Waldner_Rob_sm_150dpi_RGBAt Invesco Fixed Income, we believe strong global growth should ultimately pressure US interest rates upward as global monetary policy tightens. In the short term, however, the US Federal Reserve (Fed) has indicated that it does not intend to tighten interest rates quickly. Moves from other central banks, such as the European Central Bank (ECB), will likely drive price action in longer-dated US Treasuries, in our view. As global growth continues to improve, other global central banks’ actions may catalyze a move higher in US Treasury yields.

Below is an overview of the Invesco Fixed Income team’s outlook for interest rates in other key world economies:

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New jobs report disappoints, but shouldn’t stop the Fed

A June rate hike is still possible given longer-term employment trends

James OngCorum

Today’s jobs report from the US Bureau of Labor Statistics was headlined by a much lower-than-expected number, with nonfarm payrolls growing by just 98,000 in March. Yet, we at Invesco Fixed Income don’t think the results are as bad as the headline indicates, and it does not change our view of future Federal Reserve interest rate hikes.

 Analyzing the jobs report

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Currency outlook: US dollar performance could be mixed

Invesco Fixed Income shares its views of currencies around the world

Raymund UyStronger global growth environments, like the current one, are typically mixed for the US dollar. The US Federal Reserve (Fed) demonstrated at its March meeting that it is not aiming to disrupt financial markets. This backdrop — above-potential growth and a benign Fed — should translate into mixed US dollar performance versus developed market currencies, in the view of Invesco Fixed Income. We believe the US dollar should underperform emerging market currencies broadly.

See below for the Invesco Fixed Income team’s outlook for other key world currencies.

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Why we are not afraid of the Fed

Global growth is picking up, and the Fed seems unlikely to disrupt the momentum

Waldner_Rob_sm_150dpi_RGBThe Federal Reserve (Fed) raised interest rates in March and is likely to raise them again twice this year, yet the financial markets have taken this news in stride. Why is this? Simply put, the Fed is behaving dovishly, considering the positive growth pattern we are seeing.

We are in the midst of a global growth pickup that began in the second half of last year. The three largest economic blocs — the US, Europe and China — are showing solid growth.1

  • In the US, a pickup in expectations and “animal spirits” due to the US election in November has boosted growth to above-trend levels.
  • In Europe, monetary stimulus has supported domestic growth, and the eurozone economy is now also growing above trend after lackluster performance in recent years.
  • The Chinese economy stabilized at the end of last year, and it too is showing upside growth momentum.

For the first time since

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Fiscal policy and the muni market: Five areas to watch

We examine the potential effects of Trump’s tax and infrastructure proposals on the muni market

Larosiliere_Stephanie_sm_150dpi_RGBIn recent months, the Trump administration has discussed a number of initiatives that could impact the US municipal market — some potentially adversely. At the top of the list are tax reform and major increases in infrastructure spending. Concern over the impact of these policies — particularly changes in tax exemptions currently enjoyed by US municipal investors — has caused some volatility in municipal bonds since the US election. However, while policy uncertainty remains, Invesco’s municipal bond team believes the US municipal market may offer opportunity in 2017. Below, we assess five likely implications on the municipal market in the coming year and beyond.

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The UK triggers Brexit with Article 50. So what happens now?

With key European elections ahead, post-Brexit relationships remain unclear

Arnab DasConnery_Sean_se_150dpi_RGBThe Brexit process started today, when British Prime Minister Theresa May formally notified the European Union (EU) of the UK’s intention to withdraw from the EU under Article 50 of the Lisbon Treaty.

The invocation of Article 50 kicks off a scheduled two years of formal talks with the European Commission, the EU’s executive branch, on the terms of the UK’s exit. Talks will likely lead to a new UK-EU relationship or — in the event of a failure to strike a new deal in time — to the UK “crashing out” of the EU, with the potential for serious economic disruption to trade, investment and general relations.

The nine months since the June 2016 referendum on EU membership has been full of preliminaries, doubts, soul-searching and posturing on both sides of the English Channel. At Invesco Fixed Income, we expect a good deal of posturing to continue as actual negotiations get underway.

Key elections will shape the future of the UK-EU relationship

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