Perspectives Blog

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

Compared to the market consensus, our views have been more negative on three key duration fundamentals. Following recent remarks by Fed Chair Janet Yellen, we are now less confident about how to read Yellen’s policy strategy. We are still expecting higher rates; however, we now have less conviction that 3-5yr Treasuries will continue to underperform on the curve. For the last couple of months we have argued that portfolios should remain underw…

U.S. rates — The Draghi floor

Zach Pandl, Portfolio Manager and Strategist | September 8, 2014

…Floor” on inflation expectations—struck at around 2.1% for 5y5y inflation swaps (Exhibit 1). Below this level the ECB will act. Exhibit 1: 5y5y eurozone inflation swap rate So has the ECB done enough? Perhaps not. Unlike the Fed’s use of unconventional monetary policy over the last six years, there was no “shock and awe” moment—something definitively convincing investors that we’ll see a sustained recovery in the eurozone. We suspect that it wil…

Slack and inflation

Zach Pandl, Portfolio Manager and Strategist | July 21, 2014

Today’s low unemployment rate indicates modest slack in labor market, which implies earlier Fed rate hikes and/or more inflation risk. The decline in labor force participation in recent years now looks mostly structural. Investors should remain cautious around U.S. interest rate risk despite a solid first half of 2014. Excerpted from Zach Pandl’s newest whitepaper Structural weakness in labor force participation means there is less slack in th…

U.S. rates – Forward guidance taxonomy

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

The Fed’s communication for 2014 looks like the strongest type of forward guidance, one that clarifies the existing policy approach and backs up statements with some type of commitment. Current statements for 2015 and beyond are closer to the weakest type of forward guidance, a forecast that the central bank will behave in the future differently than it has behaved in the past. Look for the market’s heavy reliance on the SEP forecasts to fade o…

Labor market takes center stage

Zach Pandl, Portfolio Manager and Strategist | October 15, 2013

Labor market issues have long taken a central role in Janet Yellen’s career. Remarks indicate Yellen views current labor market challenges as potentially very costly for the economy, and she sees a role for monetary policy in promoting recovery. Yellen’s nomination likely raises the bar for Fed tightening, as long as inflation remains low. When it comes to the current priorities for monetary policy, investors already know where Janet Yellen st…

What to expect from Janet Yellen’s testimony

Zach Pandl, Portfolio Manager and Strategist | February 10, 2014

Yellen’s testimony before U.S. lawmakers will help clarify how she plans to govern the committee Some investors are expecting a meaningful change in direction from the Yellen Fed We look at four reasons why we anticipate continuity with the Bernanke regime After a few bewildering weeks with Nicolas Maduro and Erdem Basci, I can’t be the only one grateful to be turning attention back to Janet Yellen. The new Federal Reserve Board Chair will mak…

More heat than light

Zach Pandl, Portfolio Manager and Strategist | October 3, 2013

Recent comments from the Fed have provided relatively little information about future QE tapering decisions. Officials have expressed contradictory views on several major policy concerns, including the state of the labor market. If economic growth continues over the next few months, tapering may commence in December. Following their surprising decision to maintain the current pace of quantitative easing (QE), Fed officials provided more detail…