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.