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

From Buddha to Bagehot: how global banks are keeping the liquidity flowing
If liquidity is the ineffable essence of being for banks, its absence presents an existential threat.
Biodiversity in focus in EOS’s Q3 Public Engagement Report
Why companies need to stop taking nature for granted
Weekly Credit Insight
The interest-rate sensitivity of credit has increased.
The Meeting Room Webcast: Global Emerging Markets, October 2020
As we navigate the ever-changing landscape of the coronavirus, the Global Emerging Markets team reflect on recent performance, and discuss the outlook for Global Emerging Markets from both a market and portfolio positioning perspective.
Global Emerging Markets positive impact case study: Advantech
Through its IoT business, Advantech contributes to the attainment of the SDGs
The red and the blue – updates from the US, October 2020
In this webcast, Clive Selman, moderates a discussion with colleagues Phil Orlando and Steve Chiavarone to hear their thoughts on the US elections and the impact on 2020’s final quarter and beyond.