OpenMarkets Weekly: Searching The Globe for Yield

At a Glance

  • Central bank activity now has a global reach and an intertwined relationship with the world's fixed income markets.

After the Federal Reserve decided to keep its target rate steady at its January meeting, Chairman Jerome Powell devoted part of his press conference remarks to discussing the global economy. “There are grounds for what I would call ‘cautious optimism’ about the outlook now for the global economy,” he said.

Powell’s reference to matters outside the U.S. was expected. Geopolitical events around the globe affect the U.S. economy, and increasingly, central bank decisions do too. Jack Bouroudjian discusses the trend in this week’s OpenMarkets Weekly above.

The U.S. target rate remains at 1.5 to 1.75% following three Federal Reserve cuts in 2019. That’s still a higher rate than several major economies including Japan and Germany, where negative rates remain in effect. That has led to market participants seeking higher yielding debt in the U.S., a phenomenon known as the relative value trade.

“As central bank action in Europe and Japan drove rates into negative territory in 2019, the U.S. fixed income market acted accordingly,” says Jack.  “European and Japanese fixed income managers scrambled to look for yield around the world, and they found it in the U.S. debt market driving prices higher and yields lower.”

See why Jack says market watchers can no longer focus only on the Fed, but must pay close attention to the actions of central banks around the world.

Watch his full discussion above.

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

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