The bond rally isn't quite done The bond rally isn't quite done\images\insights\article\treasury-department-small.jpg January 21 2020 October 3 2019

The bond rally isn't quite done

Decelerating growth and rising geopolitical worries are bond friendly.
Published October 3 2019
My Content

The bond rally that resumed in mid-September is likely to continue a bit longer, abetted by signs of decelerating U.S. growth and a litany of geopolitical risks, from Brexit and Hong Kong protests overseas to the resumption of U.S.-China trade talks and the impeachment inquiry here at home. In addition, the mountain of negative-yielding bonds in Europe and Japan and the likelihood of further easing by the Fed should also contribute to some further increase in U.S. Treasury bond prices and decline in yields, even more so if the stock swoon at the start of October deepens.

All that said, there are offsets. Financial conditions remain supportive of growth and global central bank easings should cushion the blow of the global trade and growth deceleration. Such factors contribute to our base case view that the U.S. economy will continue to expand in coming quarters, albeit at modest rates. Moreover, both the U.S. and China could use some semblance of a trade deal, not only to nudge their slowing economies but also to offset all the negativity surrounding the impeachment process in the U.S. and the ongoing riots in Hong Kong.

Some in the market may suggest all of the challenges are priced into current low Treasury yields, and any improvement on the trade or geopolitical front will prompt a rebound in yields. That day may come, eventually. For now, Federated’s fixed-income duration committee believes the current environment supports some further increases in Treasury prices and a downward bias in market yields.

Tags Fixed Income . Interest Rates . Volatility .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.

Federated Investment Management Company