August Outlook
August 8, 2018  |  By Hank Cunningham

We maintain our outlook that U.S. and Canadian bond yields will rise with a near-term target of 3.25% for the U.S. ten-year. While there was some upward movement in global bond yields in July, the yawning gap between those yields (mostly those in the Euro zone) continues to attract safe-haven flows to the U.S. bond market.

There can be little in the way of definitive analysis on the net effect of the tariff impositions on economic growth. At the margin, growth will be less than consensus, while inflation will be higher.

The U.S. credit markets will feel the weight of the burgeoning Federal Deficit. The Treasury announced a significant increase in borrowing for the current quarter with a total issuance of $78 billion planned with an increased emphasis on longer-term issuance. Combined with the ongoing reduction in the Fed’s balance sheet, the net result, again at the margin, will be upward pressure on market yields.

The Federal Reserve will continue its gradual tightening and will be joined by the Bank of Canada.

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July Outlook
July 9, 2018  |  By Hank Cunningham

Given the strong fundamentals for the U.S. economy and the accompanying rise in inflation, ten-year yields should move above 3% soon, with a year-end target of 3.25% a distinct possibility.

The Federal Reserve and the Bank of Canada will continue to withdraw accommodation at a measured pace and thus will move their respective key short-term rates ever closer to “normal.”

Overhanging the bond market is the possible detriment to global growth arising from the tussle over tariffs. Neither the Fed nor the Bank of Canada has made any downgrades thus far to their respective forecasts.

Credit markets have displayed some nervousness understandably but, overall, they remain well-behaved.

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June Outlook
June 7, 2018  |  By Hank Cunningham

The yield curve flattened further in May. It actually steepened early in the month when long-term rates rose quickly but this reversed and the yield spread between the two-year and ten-year U.S. Treasury ended the month at 43 basis points.

May began with a continuation of this year’s rise in bond yields. With the U.S. economy throwing off strong retail sales, manufacturing and employment reports, the U.S. ten-year yield rose to 3.11%. Then, it all changed.

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