China's Bond Market Opening—Gentle Giant or Behemoth?

Gerwin Bell, PhD. Lead Economist, Asia, Global Macroeconomic Research Team, and Johnny Mak, Portfolio Manager, EMD Team

The opening of China’s onshore bond market marks a historic juncture. Its growth in recent years not only made it the world’s third largest bond market, but one that has also outperformed most other markets this year amid rapidly evolving regulation as it moves closer to securing inclusion into major bond market indices. Given that the market has yet to become a focal point for global investors, this paper highlights recent key developments, relevant technical specifics, and the intertwined macroeconomic and regulatory idiosyncrasies that investors need to be cognizant of in order to fully realize the potential of this new investment opportunity.

The Surprisingly Restrained U.S. Consumer: A Source of Stability for the Global Economy?

Nathan Sheets, PhD, Chief Economist and Head of Global Macroeconomic Research, and George Jiranek, Analyst, Global Macroeconomic Research

With the recent 10-year anniversary of Lehman Brothers’ failure, it’s useful to step back and assess how the global economy and financial system are different than they were a decade ago. In this paper, we examine a difference that has powerful implications for economic performance. Specifically, one seismic shift since the crisis has been a sustained retrenchment by U.S. consumers. Many of the imbalances before the crisis have been reversed. We also document that in recent years the U.S. household saving rate has been higher than historical relationships suggest, and household indebtedness has been significantly lower.

Recent Thought Leadership

A New Chapter for the Brazilian Economy?

Francisco Campos-Ortiz, Lead Economist, Latin America, Global Macroeconomics Research Team, Cathy Hepworth, Co-Head, EMD Team, and Matt Duda, Portfolio Manager, EMD Team

Jair Bolsonaro’s victory and the reshuffle in congress reflects the underlying anti-establishment sentiment that characterized Brazil’s latest general election. The Bolsonaro administration will likely push for an overall market-friendly agenda that includes addressing Brazil’s pressing fiscal shortcomings. However, questions about Bolsonaro’s true commitment to orthodox policy prescriptions and governability conditions pose potential downside risks. Various metrics, particularly those capturing the economy’s external stance, will likely maintain Brazil’s creditworthiness in the short term. On a longer-term horizon, Brazilian financial assets could become reliable alpha-generating alternatives if the incoming administration is able to alleviate supply-side constraints and further correct macroeconomic imbalances.

Lower Range to Drive Stealth Bull Market in Bonds

Robert Tipp, CFA, Managing Director, Chief Investment Strategist, Head of Global Bonds

In this paper, Tipp 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.

Weekly View: Uncertainties Persist into Year End

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