U.S. Rates: Low for Long, but Likely Positive
The burgeoning stock of negative-yielding debt across the international markets has investors wondering: will it happen in the U.S. too? Given our long-standing “low for long” thesis for the global bond markets, we expect U.S. rates to fluctuate around current levels and ultimately remain positive given some key distinctions between the U.S. and the growing list of negative-yielding countries. Our assessment starts at the front-end of the curve and whether the Federal Reserve could resort to a nominally negative Fed funds rate. We then look at factors affecting longer-term rates.
Turkey—A Short-Term Reprieve Amidst Persistent Uncertainties
Turkey’s economic crisis erupted one year ago, and PGIM Fixed Income recently returned to the country to gauge the outlook going forward. While Turkey’s large external financing requirements remain its key vulnerability, funding flows should continue normalizing. In this context, it is noteworthy that political uncertainty appears to have “troughed.” Growth apparently remains the overarching priority of economic policy, and any policy missteps risk draining the rather limited (unencumbered) official FX reserves. However, in such a scenario, the authorities could turn to the IMF as a last resort. On balance, we remain cautiously constructive on Turkey’s outlook.
Argentina: 5 Key Questions
The unexpected and shocking defeat of President Macri and his center-right party in the Argentine primaries on August 11 has led to a significant repricing of Argentina assets. In addition to providing revised macro forecasts given PGIM Fixed Income’s base case that the Fernandez ticket wins the October election, we provide perspective on 5 key questions regarding how events may unfold in Argentina going forward.
The ECB Steps Toward September Easing
In this piece, PGIM Fixed Income explores a package of easing measures the ECB will likely initiate in September 2019. In sum, a first rate cut in September combined with tiering is all but a foregone conclusion. A decision on asset purchases is now highly likely, but it may come only in December, depending on how quickly a consensus can be forged.