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A Dramatic Shift in US Monetary Policy

Global Fixed Income and Monetary Policy Updates

Despite the market's volatility in late 2018, December's US monetary policy stance was straightforward - a bias towards continued tightening (2 more rate hikes in 2019) and a balance sheet runoff that was described as being on 'autopilot.'  Yet just over one month later, January's Fed meeting marked a dramatic shift towards more dovish monetary policy, with emphasis on patience until the next rate move, and a forthcoming halt to the runoff.  

What are the implications of these announcements for fixed income markets?  Find out by scanning the list of papers below that spans recent fixed income outlooks as well as advice from monetary policy pundits at leading asset management companies. 

dovish US Fed

Fed Thoughts: Poles Apart (Mellon, Jan 2019)

Vincent Reinhart, Chief Economist at Mellon (and also a former Director and Economist at the Federal Reserve) discusses the aftereffects of the US government shutdown on the Fed's outlook and US monetary policy expectations for 2019.

Fixed Income Outlook

Bond Compass: analysing $10 trillion of bond flows (Q4 2018, SPDR ETFs)

For compliance reasons, this paper is only accessible in certain geographies

This global, quarterly report contains indicators deriving from a data set representing USD 10 trillion in assets. This data shows bond flows and holdings from Q4 2018, providing insight into institutional appetite for fixed income assets.

EM Debt Chart Book - Q4 2018 (Eaton Vance, Jan 2019)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Eaton Vance presents their 38-page quarterly chart book on emerging markets debt, with insight into both sovereign and corporate credit, as well as other economic and market data affecting EM debt markets in Q4.

Fed's Pause May Refresh a Tiring Economic Recovery (Moody's, Jan 2019)

The featured article in this week's Credit Market Outlook from Moody's is on a recent shift in the monetary policy stance undertaken by the Federal Reserve.

Video: Emerging markets debt likely to hold ground, despite volatility (Capital Group, Jan 2019)

For compliance reasons, this paper is only accessible in the UK & Europe

Rob Neithart, a portfolio manager with Capital Group, explains why investors shouldn't fear widespread, systemic risk in EM bond markets. He suggests reasons for recent volatility and offers a few areas of opportunity.

Podcast: Assessing Today's Private Credit Landscape (Barings, Dec 2018)

Where is the best relative value within private credit markets today, and how should investors adapt to a maturing cycle and rising competition? Barings' Eric Lloyd weighs in.

GCC/MENA Bond Market Update (Franklin Templeton, Dec 2018)

For compliance reasons, this paper is only accessible in the EMEA region

Trade tensions and global growth concerns led to a volatile 4th quarter of 2018 for developed markets. Franklin Templeton explores some differences between emerging and developed markets, and provides an update on GCC/MENA bonds.

Municipal Credit Outlook 2019 (Northern Trust)

Northern Trust presents their 2019 outlook for the US municipal bond market, with insight on the impact of trade wars upon individual states and specific muni revenue bond sectors.

Monetary Policy Punditry

Review of the Federal Reserve's January Meeting (Pictet WM, Jan 2019)

Pictet Wealth Management provides an update on US monetary policy, given the recent FOMC meeting and press conference.

Will the change in message come back to haunt the Fed? (Fidelity Intl blog, Jan 2019)

For compliance reasons, this paper is only accessible in the UK & Europe

The US Federal Reserve's dovish message was a remarkable shift, and likely an unnecessary one as not much has changed over the past few weeks in terms of the economic outlook.

The Fed’s balance sheet is (mostly) a red herring - Fulcrum AM blog, Jan 2019

Fulcrum Asset explains that the intricacies of QT are not as important as the supportive effects of QE, so less emphasis should be placed on the size of the balance sheet and balance sheet 'normalization' policy.

Is It Time for the Fed to Ditch the Dot Plot? (AB blog, Jan 2019)

For compliance reasons, this paper is only accessible in North America and South America

The authors suggest that given the magnitude of recent market reactions to Fed statements and other comments, Fed communication policy itself needs amending. One thing that may help is eliminating the dot plot altogether.