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It was all about the Federal Reserve in 2023. After much fretting over policy direction and potential for recession, the yield on the 10-year U.S. Treasury Note ended the year nearly where it started, and the S&P 500® Index climbed more than 26% in 2023. Meanwhile, the Volatility Risk Premium, or the difference between implied and realized volatility, was positive throughout the year and averaged 4.19% in 2023, above the since-1990 average of 4.08%. Learn more and other important information in our latest Market Recap > https://lnkd.in/euZhg_Ma

Trouble in bond markets: Bonds markets are reeling from the risk that the Fed won’t cut interest rates as much as expected. The 10-year Treasury yield rose above 4.2% for the first time since July, setting off a surge in borrowing costs from Australia to Germany. A gauge of expected debt-market volatility, called the Ice BofA MOVE index, is now around its highest of the year. Once again, it looks like bond investors got carried away with a rally fueled by optimistic bets for easier monetary policy — only to be hit with the reality that change may not happen as quickly as they would like. It’s a pattern that played out on repeat for the past two years. Here’s some of the reasons behind the bond market selloff this time around: Traders are rethinking the path of US interest rates. A repeat of September’s half-point cut is already off the table. Torsten Slok of Apollo Management sees a rising chance that the Fed will hold rates in November and others think policymakers will skip in December. On Monday, Fed officials indicated to varying degrees that they plan to take rates lower, but perhaps more slowly than anticipated. The US jobs market is strong. The economy is proving more robust than expected. The Bloomberg Economic Surprise Index, which captures when data exceeds economist forecasts, is at the highest since May. Budget deficits are getting bigger. The International Monetary Fund, which is holding its annual meetings in Washington this week, already predicts US debt will surpass 100% of gross domestic product next year. Deutsche Bank analysts also forecast the budget deficit will be between around 7% and 9% from 2026 through 2028, regardless of whoever is in the White House. The greater the deficit, the greater the issuance of bonds. (Bloomberg)

[Value Partners Fixed Income Outlook – Q4 2024] The recent 50bp rate cut by the Fed showcases confidence in maintaining a 2% inflation target, but rising volatility is expected as the US election approaches. Meanwhile, China is introducing stimulus measures to revive its property market and consumer sentiment. However, challenges like high inventory levels and sluggish consumption persist. How could we adapt investment strategies effectively to navigate these complexities as we move forward? Click here to learn more about Value Partners’ latest views on fixed income: https://bit.ly/4dQ4e64 Follow us on LinkedIn and get the latest news and investment insights. ------------------------------------------- 💡 Know more about Value Partners: bit.ly/3AIa8FX 🔎 Facebook: bit.ly/3mjfFLB  🔎 YouTube: bit.ly/valuepartners4236 🔎 Subscribe to our e-newsletter: bit.ly/3AGDDI6 #valuepartners #mutualfunds #investments #assetmanagement #wealthmanagement #fixedincome - Investment involves risks. The above information is for reference only. It does not constitute an offer or an invitation to subscribe any securities, or a recommendation in relation to any securities. Issuer: Value Partners Hong Kong Limited.

The S&P 500 in the US rose 1.6% last week, hitting new highs as investors were encouraged by a softer than expected May inflation report. In contrast, European shares fell 2.8% in the wake of fresh political uncertainty. Elsewhere, the Australian ASX 200 was down 1.7% and the FTSE 100 in the UK ended the week 1.2% lower. Japanese and emerging markets were little moved, as was the local NZX 50. French president, Emmanuel Macron, took everyone by surprise when he called snap legislative elections following his centrist Renaissance party’s heavy defeat in the European parliamentary elections at the hands of RN, the biggest single opposition party led by Marine Le Pen. France normally holds elections every five years, and they weren’t due until 2027, although we'll now see two rounds of voting on 30 June and 7 July. This news saw a risk-off tone reverberate across European markets, with shares falling and investors taking refuge in bonds, gold and the US dollar. French bonds sold off as investors demanded a higher risk premium, which saw the spread between French and German yields widen to a four-year high. The US two-year Treasury yield fell slightly to 4.7%, while the 10-year Treasury yield slipped to 4.2%. the lowest in more than two months. The New Zealand five-year swap rate fell eight basis points to 4.4%, the lowest since early April. May’s Selected Price Indexes (which cover about 45 per cent of the Consumer Price Index basket of goods) were slightly weaker than expected, which bodes well for the path of inflation in the June quarter. Looking ahead, retail sales are out in the US this week, while China will release monthly activity indicators on Monday afternoon. Global flash PMIs for June are due on Friday, while central bank decisions loom in Australia and the UK. Here in New Zealand, a housing market report is out on Monday, while later in the week we'll get the results of the latest dairy auction and the March 2024 quarter GDP report. Enjoy your markets week team!

Where has this year gone?! But so much still to come before the year is out with Labours first Budget and the continuing fight in the U.S Election. In the meantime Daniel Casali provides this months investment outlook to keep us up to date - "The US Federal Reserve (Fed) is likely to follow other major central banks and cut interest rates in response to lower inflation. Assuming the US avoids a recession, lower rates should be a positive for equity investors, particularly as companies continue to generate solid earnings. The risk for markets is that the Fed holds off from lowering rates. However, faster productivity growth and a cooling labour market should tip the balance in favour of a September rate cut. The upcoming US election should not be a constraint on Fed decision making." Evelyn Partners for Advisers

The Federal Reserve has increased its stance by cutting interest rates by 50 basis points. This decision reflects the Fed's efforts to stimulate the U.S. economy amidst ongoing economic uncertainties. The rate cut aims to provide more flexibility and support for financial markets, businesses, and consumers, especially in the face of challenging global conditions. #FederalReserve #RateCut #Economy #InterestRates #MonetaryPolicy

Markets caught a break on Thursday as the white heat of the corporate earnings season saw a beat for megacap Tesla that sent its shares surging 12% before the bell while bond yields beat a retreat on soft business surveys overseas. There was also some wariness that recent pre-election trades betting on a win for Republican Donald Trump in next month's White House race may be a tad premature. There's still no clear indication from polling on how the close contest will break, with nearly 25 million early votes already cast, according to tracking data. With U.S. flash business surveys for October and weekly jobless claims data due out later, the relentless rise in Treasury yields over the past week seemed to cool and 10-year yields fell back below 4.2% after the prior session's Wall Street stock swoon. Even though Federal Reserve easing projections over the next year have been pegged back by as much as 50 basis points over the past month, rate cut fever remains rife abroad. The Bank of Canada sliced 50bps off its policy rates on Wednesday and sub-forecast euro zone business surveys for October continued to show the regional economy there in contraction this month, keeping speculation of accelerated European Central Bank easing alive. In Japan too, business surveys showed shrinking activity this month and Bank of Japan governor Kazuo Ueda on Wednesday indicated he was in no rush to 'normalise' rates there further - even if he remained wary of excessive yen weakness. Japan's Finance Minister Katsunobu Kato then issued a warning against currency speculation on Wednesday, expressing concern over "one-sided, rapid" moves in the currency market. With that and the cue from ebbing Treasury yields, the dollar retreated broadly from near three-month highs and dipped back below 152 yen.

Trouble in bond markets  Bonds markets are reeling from the risk that the Fed won’t cut interest rates as much as expected. The 10-year Treasury yield rose above 4.2% for the first time since July, setting off a surge in borrowing costs from Australia to Germany. A gauge of expected debt-market volatility, called the Ice BofA MOVE index, is now around its highest of the year. Once again, it looks like bond investors got carried away with a rally fueled by optimistic bets for easier monetary policy — only to be hit with the reality that change may not happen as quickly as they would like. It’s a pattern that played out on repeat for the past two years. Here’s some of the reasons behind the bond market selloff this time around:  Traders are rethinking the path of US interest rates. A repeat of September’s half-point cut is already off the table. Torsten Slok of Apollo Management sees a rising chance that the Fed will hold rates in November and others think policymakers will skip in December. On Monday, Fed officials indicated to varying degrees that they plan to take rates lower, but perhaps more slowly  than anticipated. The US jobs market is strong. The economy is proving more robust than expected. The Bloomberg Economic Surprise Index, which captures when data exceeds economist forecasts, is at the highest since May.  Threat of faster inflation under Trump. The presidential race is still a coin-toss with two weeks to go, but Republican Donald Trump has the advantage over Democrat Kamala Harris in betting markets. His support for higher tariffs and looser fiscal policy has been seen as unfriendly to bonds because it means faster inflation and more debt. Budget deficits are getting bigger. The International Monetary Fund, which is holding its annual meetings in Washington this week, already predicts US debt will surpass 100% of gross domestic product next year. Deutsche Bank analysts also forecast the budget deficit will be between around 7% and 9% from 2026 through 2028, regardless of whoever is in the White House. The greater the deficit, the greater the issuance of bonds For more about the bond market selloff, check out Ruth Carson and Masaki Kondo’s story today. 

In October, interest rates rose significantly amid a sequence of stronger-than-expected economic data that created heightened uncertainty over the trajectory of the Fed’s projected easing cycle. GW&K Investment Management’s Taxable Bond Team shares how these developments are influencing their portfolio positioning, sector allocation, and outlook in their latest update: https://lnkd.in/dhf5eqFe #fixedincome #activeinvesting #taxablebonds

VIX remains elevated reflecting high levels of uncertainty and risk There are two races scheduled for 5 November. Locally, the Melbourne Cup is a race that stops the nation. The result will be known immediately and unlikely to be challenged. The other race between just two contenders could stop the world. Regardless of the outcome of the US presidential election, Western democracies face a challenging period, which will keep the volatility index (VIX) elevated while gold should continue to attract safe-haven interest as it pushes toward US$2,800. The collaboration between China, Russia, Iran and North Korea (the CRINKs) has strengthened since Russia invaded Ukraine in February 2022. The deployment of North Korean troops to Russia is the latest evidence of the increasing commitment of the axis. Markets are becoming increasingly convinced hopes of a return to zero-bound interest rate settings is forlorn. A meaningful improvement in U.S. fiscal policy is unlikely after the presidential election, while inflation still niggles. In this uncertain environment, bond yields are unlikely to collapse. In a busy week for economic news, the U.S. Treasury released its Quarterly Financing Estimates for 4Q24 and 1Q25. It also confirmed borrowings of privately-held net marketable debt was US$762 billion in 3Q24 taking the total for the nine months ended September to US$1.744 trillion. The estimate for 4Q24 is US$546 billion and would lift borrowings for 2024 to US$2.29 trillion. The estimate for 1Q25 is US$823 billion, 10% higher than 1Q24 of US$748 billion. With government spending forecast to increase, the U.S. Treasury will continue to be a very reliable source of supply. Yields will need to be high enough to attract buyers, while not jeopardising the financial stability of the government. The U.S. budget deficit for fiscal 2024 was US$1.833 trillion, the highest outside the COVID-19 era, and the third highest on record. Interest on federal debt exceeded US$1 trillion for the first time. On the fiscal front, there appears to be little positive news for bond buyers. Other economic data to be released later in the week and before the 6-7 November meeting of the Federal Open Market Committee will shed light on both inflation (September’s PCE Price Index) and employment (October nonfarm payrolls report) and economic growth with 3Q24 GDP. The core PCE is forecast to increase 0.3% from August and 2.6% on an annual basis. Nonfarm jobs are expected to increase by a 140,000 from 254,000 in September. The Atlanta Fed’s GDPNow estimate was cut from 3.3% to 2.8% on 29 October. Markets are edging away from the prospect of ongoing Fed rate cuts and a decision to leave the federal funds rate unchanged would not surprise.