2024-07-12 09:00:00 ET
Summary
- Despite policy rate cuts remaining elusive, several tailwinds are boosting a resilient U.S. economy.
- While the Fed continues to navigate a potential soft landing, global central banks are actively transitioning onto a path of easing policy.
- While H1 2024 has felt like a perpetual state of “hurry up and wait,” a pivotal US presidential election and the potential for elusive rate cuts begin to make the second half of the year a more interesting story for fixed income investors.
Despite policy rate cuts remaining elusive, several tailwinds are boosting a resilient U.S. economy. And while the Federal Reserve (Fed) continues to navigate a potential soft landing, global central banks are actively transitioning onto a path of easing policy.
- Going into 3Q, there is less uniformity in the path forward among central banks; the European Central Bank and the Bank of England are guiding for more rate cuts this year, while rate cuts in the U.S. continue to be delayed and decreased.
- A healthy labor market and resilient consumer have been the most significant part of the U.S. economy propping up growth and prices. However, those components are starting to show signs of cooling, a potential indicator of a more substantial slowdown.
- Ahead of likely election-related volatility, many fixed income asset classes are poised for potential outperformance heading into the second half of the year.
Today's economic backdrop offers everything that a fixed income investor could traditionally ask for: positive but moderating economic growth, easing inflation pressures, and a Federal Reserve on the verge of a new rate cutting cycle. Of course, prospects for the asset class were more attractive earlier this year when the market was pricing in multiple rate cuts, and potential duration gains looked significant. However, fixed income has handled the significant repricing in rate expectations well, helped by continued macro resilience and yields sitting near the top end of their range over the past two decades....
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Fixed Income Perspectives: Looking Ahead At Q3 2024 - A Resilient U.S. Economy Is Keeping Rate Cuts On Hold... For Now