https://www.westernsouthern.com/fortwashington/insights/us-bond-yields-plummetInvestment Conclusions
For the past year and one half, U.S. financial markets have mainly been driven by policy developments on the monetary and trade fronts. After tightening policy throughout 2018, the Fed paused at the beginning of this year when President Trump escalated the trade war with China and global equity markets plummeted. Today, in the wake of a further escalation in the conflict, risks to global growth are skewed to the downside, while the Fed is being pressured to ease monetary policy, which is increasingly likely in the second half of this year.
We believe the bond market is fairly valued now both in terms of duration and credit risks. In this context, the evolution of data and the policy responses – trade and monetary – will determine the performance of risk assets such as equities and lower-rated bonds. While they have rallied of late, we believe caution is warranted.
