Weekly Strategy Report (February 19, 2018)Contributor Multi-Asset Solutions
- The bond market sell-off has been broad-based – across regions and across the curve. Just as the strength in growth has been synchronized, so too has the rise in global bond yields.
- A range of factors is pushing yields higher: firming U.S. inflation amidst strong growth, U.S. fiscal expansion as well as less accommodative policy from major central banks.
- On a 12-month basis, we are moderately underweight duration, while noting that yield rises remain constrained by a gradual tightening cycle from the Federal Reserve (Fed). Moreover, easy policy from other central banks caps how far yields can rise.
- We recently revised our yield forecast range higher to 2.5%-3.15%. At current levels, we acknowledge the two-way risks around duration.
- Higher yields are not inconsistent with strong risk asset performance – as long as yield moves are commensurate with the economic backdrop. We maintain a pro-risk stance within multi-asset portfolios.
EXHIBIT 1: HIGHER FISCAL DEFICITS FROM TAX REFORM AND FISCAL SPEND RAISE TREASURY ISSUANCE
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