U.S. Rates: Low for Long, but Likely Positive
Given our long-standing "low for long" thesis for global bond markets, we expect U.S. rates to fluctuate around current levels and ultimately remain positive.
The recent reduction in global growth, inflation, and long-term interest rates occurred faster than we expected. Therefore, our prior, already-below consensus long-term interest-rate forecast appears too high. As the countdown to zero across the developed markets progresses (more in real terms in the U.S. and more in nominal terms in core Europe and Japan, for example), this paper looks at the factors that have continued to push the interest-rate equilibrium lower and the market implications of an even lower-for-longer rate environment.
In this paper, Robert Tipp, CFA, Chief Investment Strategist and Head of Global Bonds discusses the Federal Reserve's implicit adoption of a "market-collar" approach, becoming more accommodative when markets become too risk averse (the well-recognized "Fed put") and removing accommodation if markets become too ebullient (the "Fed cap"). The result of the Fed's "market-collar" may well be a prolonged economic expansion with perhaps a volatile, but extended, cycle for spread-product outperformance versus government securities.
In this paper, Robert Tipp, CFA, Managing Director, Chief Investment Strategist, and Head of Global Bonds explains how some forecasters may think the bear case for DM rates has strengthened-and maybe it has in the short term with G3 yields ticking higher recently. Tipp subsequently looks at the evidence that has emerged over the last several months supporting a "low for longer" thesis for DM rates over the long term. He also provides a new long-term central tendency for the U.S. 10-year yield and his expectations for the 10-year bund and 10-year JGB yields going forward.
In this paper, Robert Tipp, CFA, Managing Director, Chief Investment Strategist, and Head of Global Bonds addresses questions pertaining to the recent increase in developed market interest rates, including the effects from increased Treasury supply, a rising Federal deficit, normalizing developed market monetary policies, and a weaker U.S. dollar.