A major inflection point for global interest rates will be reached during 2017, according to ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products (ETPs).
We have witnessed some big moves in financial markets in the early hours of trading today following the confirmation that Emmanuel Macron will face Marine Le Pen in the second round of the French Presidential election. European corporate bond spreads were tighter on the news, and the euro was up by over 1% versus the U.S. dollar.
In aggregate, the bond asset class remains expensive. Government bond yields are too low to tempt a meaningful increase in duration exposure, credit spreads are so tight that it is difficult adding credit risk especially when most fixed income investors are already overweight credit relative to rates.
The markets were widely anticipating the US Federal Reserve (Fed) would raise interest rates at its March policy meeting, and the Fed delivered, increasing its key short-term lending rate—the Federal funds rate—for the second time in three months. The Fed also indicated it hasn’t likely finished its tightening cycle yet, but there are still plenty of unknowns ahead.