Global Fixed Income Bulletin
It's Complicated…
 
 

Global Fixed Income Bulletin

It's Complicated…

 

March 2018

The market outlook feels more complex than it did a month ago. The economic backdrop remains very positive, but growth surprises have moderated and become more varied across economies, with the strongest growth trajectory still being in the U.S. The path to higher growth is undoubtedly one that will be bumpier. We still think the most likely path is for interest rates to go higher, but not equally across markets. The risks are skewed to the market underpricing Federal Reserve rate hikes; underappreciating potential Bank of England tightening, while the European Central Bank could signal this month that it is in no hurry to normalize policy. Valuations also come into play, with U.S. Treasuries still demandingly priced, while German bunds are anchored by very low policy rates and quantitative easing induced scarcity.

The increase in risky asset volatility is also a challenge for spread product. The positive economic outlook continues to provide fundamental support, but higher volatility undermines risk-adjusted return expectations when valuations already look demanding versus history. Our bias is still to think that positive growth fundamentals will prevail, but the ride is likely to be bumpier than it was over the last year. Sharpe ratios will likely deteriorate.

 
 
The Global Fixed Income team follows a seamless process with a global outlook. They seek to identify and capture the potential value in situations where the market's implied forecasts are extreme.
 
 
 
 

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

The document is a general communications which is not impartial and has been prepared solely for information and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy.

Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

Prior to making any investment decision, investors should carefully review the strategy's/product's relevant offering document. For the complete content and important disclosures, refer to the link above.

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.