September Outlook
September 11, 2019  |  By Hank Cunningham

Now what? Was this turnaround in bond yields an important inflection point or was it merely a typical reaction to an overdone situation?

It is likely a combination of the two. Recession fears have been partly assuaged by the revived monetary stimulus occurring globally, accompanied by fiscal stimulus.

While manufacturing has weakened perceptibly, GDP growth remains positive in North America with recent evidence that growth in Europe may have ticked up.

Inflation remains subdued but is stirring sufficiently to attract the markets’ attention. The giant wildcard is trade, as it remains the chief potential disruptor to markets and economic confidence. Its impact is yet to be determined. We conclude that bond yields went too low, too fast and that the current rebound was to be expected. Nevertheless, recession fears have abated somewhat with renewed monetary and fiscal stimulus becoming more prevalent. Therefore, we may not witness yields falling back to their recent lows in the near term.

Arguing against a sustained climb in yields is the subdued inflation picture and slow growth.

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