Search this website. You can use fund codes to locate specific funds

Weekly Credit Insight

Chart of the week: the US moves one step closer to the rest of the world

The market sell-off earlier this year has increased the chance that interest rates will be lower for longer and has driven a convergence between yields in the US and the rest of the world (see figure 1).

Figure 1. Yields converge

Source: Federated Hermes, Bloomberg, as at July 2020.

Prior to this year, the outperformance of the US economy relative to Europe had driven a divergence in interest rates in each region. But the coronavirus pandemic prompted the US to ease its policy stance, taking it one step closer to the ultra-low rates seen in Europe and Japan.

Lower interest rates in the US have far-reaching implications for global asset allocators, given that more than half of global fixed income is denominated in US dollars. As fixed-income markets start to recover from the worst first of the year in two decades, the growing stock of negative-yielding assets will bolster demand for global credit – as will support from central banks and the attractive position of bonds relative to equities.

Moreover, the outside chance that the Federal Reserve follows Japan and Australia and implements yield-curve control will keep interest-rate volatility1 low, something that has historically supported flows into spread products.

  1. 1As measured by the ICE Bank of America MOVE Index

More Insights

Adapting to the new normal: crisis management, housing and the future of real estate
How can property managers adapt to the new reality of socially distanced spaces?
Asia ex-Japan Strategy Update: June 2020
Jonathan Pines, Lead Manager, gives an update on the Hermes Asia ex-Japan Strategy in June 2020.
Sharpe Thinking
Markets are weighing up the future in order to make sense of the new normal.
Tackling the climate crisis
Climate change is the defining challenge of our time and we are at a defining moment.
Credit: Industry Insights
Joe Howes, Credit Analyst, shares his fundamental views on telecoms, media and tower companies.
Samsung Electronics: driving the sustainability agenda in emerging markets
Our Global Equity team assess Samsung Electronics’ long-term prospects.