Mar 20, 2017

Bond investors are nervous about the global economy

For the first time in many years, the Federal Reserve and investors are on the same page when it comes to the pace of interest rate hikes this year, with both, on average, predicting 3 rate increases. But there remains significant disagreement between the Fed and markets on where the economy will be in 2018 and beyond.

Data: Department of the Treasury; Chart: Andrew Witherspoon / Axios

Over the past month, the short end of the yield curve has jumped as investors began to believe that there would three rate increases in 2017 on the strength of a faster-growing global economy. But, according to Brown Brothers Harriman's Marc Chandler, "The Federal Reserve has been unable to rebuild its credibility in the sense that investors still doubt that the central bank will deliver the rate hikes that it thinks will be appropriate. If investors took seriously that the Federal Reserve would hike rates five more times by the end of next year, the two-year note would not be yielding around 1.30%."

Why it matters: The Fed says that the U.S. economy will continue to pick up steam next year and beyond. If markets believed the central bank, they would be selling longer-termed U.S. debt and demanding higher returns to make up for future higher growth and inflation. But they're not. If the yield curve continues to flatten like this, it will be bad news for the economy going forward.

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The Fed plans to keep pumping cash

Illustration: Aïda Amer/Axios

The New York Fed added $83.1 billion in temporary liquidity to financial markets Thursday, and the U.S. central bank looks primed to keep pumping cash for at least the next few months.

Why it matters: The stock market's 30% gain in 2019 was in no small part backed by the Fed's decision to cut U.S. interest rates three times and inject more than $1 trillion of temporary financing into the repo market. It also added more than $400 billion to its balance sheet in the fourth quarter.

Go deeperArrowJan 10, 2020

Why it was so hard for investors to lose money in 2019

Illustration: Aïda Amer/Axios

2019 was the rare year when the simple investing strategy of targeting almost anything would have worked, the New York Times notes.

What happened: A series of interest rate cuts this year from the Federal Reserve — the first since the Great Recession — juiced the markets, making it a great time for investors.

Go deeperArrowDec 31, 2019

Investors jump on the emerging markets bandwagon

Reproduced from TCW Group; Chart: Axios Visuals

A growing chorus of U.S.-based fund managers is betting that emerging market stocks and bonds are poised to outperform U.S. assets this year. The momentum for emerging markets has grown so strong that it has become almost a consensus trade, with investors even urging clients to buy EM junk bonds.

What's happening: Following 2019's blowout returns for U.S. stocks and strong performance for high yield, government and even municipal bonds, investors expect U.S. assets to fall to earth in 2020 and are positioning in emerging markets.

Go deeperArrowJan 14, 2020