The U.S. Economy's Remarkable Resilience to Higher Interest Rates
Will the economy's reduced sensitivity to interest rates begin to fade, or is 2023's strong growth repeatable? We believe the answer lies somewhere in between.
While participants await the presumptive rate cuts from most major central banks, yields remain in rarefied air. Considering that yield is destiny, the demand for fixed income will continue exerting its influence across the global bond markets in the quarters to come. Explore our Q2 Market Outlook for a bond market overview, assessment of the global macroeconomic landscape, and sector overviews in which our portfolio managers highlight the associated risks and opportunities within their respective asset classes.
Learn more about the four key themes that shape our quarterly fixed income outlook:
Central bankers signaled their policy pivots, and while we await movement, mini cycles continue playing out within the market’s higher yield ranges. The first quarter was a pause for the investment grade segment of the bond market, but the party went on for high yield and emerging markets.
True, credit spreads are tighter. But from the perspective of the last 20 years, yields remain in rarefied air, central banks appear done raising rates, and long-term rates are also probably past their peaks for the cycle. As a result, as yields drift in this new higher range, the bull market where returns derive from yield itself, is poised to continue.
While geopolitical risks fester, they have yet to result in major macroeconomic or market impacts. In an environment of tight credit spreads, these risks—amongst others—underscore the importance of issue selection to keep portfolios resilient to potential shocks.
Ongoing uncertainty continues to create a deep opportunity set for adding value through issue, sector, term structure, and currency positioning. Hence, our bond market outlook is still generally positive over the balance of 2024 as high yields boost the odds of favorable market returns (Yield is Destiny after all) and the potential for ample alpha generation remains favorable.
Will the economy's reduced sensitivity to interest rates begin to fade, or is 2023's strong growth repeatable? We believe the answer lies somewhere in between.
The U.S. economy has defied predictions of recession amid post-pandemic interest rate volatility.
Our research series reveals that a varied adjustment process across certain sectors lowered the broader economy’s sensitivity to interest rates.
This blog shares our views on the relationship between corporate margins and different U.S. economic growth scenarios using our corporate profit model to estimate performance.
We explore the historical transmission from tighter monetary policy to corporate bond spreads and the respective investment implications under our "weakflation" scenario.