For corporate pension funds, increased exposure to long credit could help: Close the spread duration gap: European corporate pension funds are generally underweight spread duration versus their liabilities. In the current market environment, wider spreads offer an opportunity to invest
The COVID-19 pandemic pummeled financial markets, but liquidity and fundamentals are coming back. Even as the humanitarian and economic crises of the coronavirus pandemic expand, policymakers have been reacting with unprecedented speed and support, and financial markets have begun to
Cyclical Outlook Following the longest expansion on record, the global economy is currently plunging into what could easily become one of the deepest but also shortest recessions in modern times. However, business cycle history offers new clues for what is
Executive Summary We believe the COVID-19 outbreak will peak in May or June, or in summer, to be followed by a meaningful economic recovery. However, the path to that destination remains highly uncertain and will likely be accompanied by disruption
We discuss portfolio positioning for our outlook of economic momentum recovering in 2020, but with certain risks at elevated levels. The past decade marked a tremendous return environment for most asset classes. 2019, in particular, was a banner year for
The outlook for the global economy has improved over the past three months, but there may be less capacity to combat a recession when it comes. We discuss seven key macroeconomic themes we expect in 2020 and implications for investors.
The outlook for the global economy has improved over the past three months, but there may be less capacity to combat a recession when it comes. We discuss seven key macroeconomic themes we expect in 2020 and implications for investors.
Why are negative nominal interest rates so troubling? Economic theory favors real rates, which have already been negative in most developed countries for some time. In theory, lowering the nominal policy rate into negative territory should produce many of the
Competing dynamics have kept U.S. inflation largely stable, but the balance may be shifting After the turbulence of the 1970s and early 1980s, U.S. inflation entered a remarkably stable period that has persisted for the past three decades. As Figure
A reprieve in trade tensions between the U.S. and China bolstered investor confidence in October even as political uncertainty increased around the globe. Washington and Beijing announced details of a potential deal – coined as “phase one” – for the
Despite an optimistic start to September, mixed geopolitical developments weighed on investor sentiment over the month. Trade tensions between the U.S. and China eased somewhat as September began: China exempted certain U.S. agricultural products from additional tariffs, and President Donald
The world’s biggest telecommunications companies spent hundreds of billions of U.S. dollars to build the pipes that undergird the internet, yet they weren’t the big winners. Instead, the giants of search, social media, and streaming media have garnered most of
In depth Companies issue both debt and equity to finance their operations, and their valuations should be linked to the enterprise value of the firm. However, due to investor segmentation, the capital market imposes little discipline in valuing the two
Years of persistent low yields across much of the global fixed income market have spurred many investors to look lower down the credit spectrum in search of yield, or to increase their allocation to equities, in an effort to meet
The Federal Reserve lowered its target policy rate for the first time in over a decade, ending one of the longest hiking cycles in the past 30 years. While the cumulative increase in the federal funds rate of 225 basis
Behavioral scientists are skilled at analyzing why we make mistakes, and financial and investment decisions have been a ripe field to till. The challenge lies in overcoming our biases that result in poor decisions, particularly in today’s late economic cycle
Executive Summary Over the secular (three- to five-year) horizon, growth in China will likely slow somewhat, and we expect some form of resolution of the current U.S.– China trade conflict. Longer-term, though, tensions will remain, as the two nations compete
M idstream energy infrastructure companies have, in our view, generally emerged from the balance sheet and nancing challenges that had plagued the sector since 2014. With these issues now largely in the rearview mirror, oil and gas master limited partnerships
Secular Outlook 2019 Major secular drivers could disrupt the global economy and financial markets over the next three to five years. We share our views on risks and opportunities ahead.
Viewpoint April 2019 U.S. corporate bond markets have transformed in the past few years as the proportion of BBB rated credit has swollen. There’s little room for error, as we noted back in January 2018. Where do we stand now?
After a rip-roaring recovery from the miserable end to last year, it is easy to think of reasons to take a more cautious view of the prospects for world equity markets. In particular, analysts have steadily lowered profit forecasts around
After a rip-roaring recovery from the miserable end to last year, it is easy to think of reasons to take a more cautious view of the prospects for world equity markets. In particular, analysts have steadily lowered profit forecasts around
Viewpoint April 2019 U.S. corporate bond markets have transformed in the past few years as the proportion of BBB rated credit has swollen. There’s little room for error, as we noted back in January 2018. Where do we stand now?
Emerging Markets Outlook Emerging markets (EM) have been fast out of the gate in 2019, recalling last year’s strong start and subsequent stumble. While we are constructive on the prospects for EM performance in the year ahead, we think the
Cyclical outlook march We believe short-term interest rates in the U.S. are now anchored in The New Neutral, as global growth keeps synching lower.
Risk assets rallied further in February due to optimism on US-China trade talks, low volatility, and positive sentiment from the Federal Reserve’s dovish pivot in January. As US Treasury prices declined, the rate curve steepened, with two-year and 10-year rates
Multi-Factor Strategies A “factor” is a generic label for company and stock price characteristics that provide the common sources of return across a broad universe of equity securities. For example, the value factor includes stocks that are inexpensive relative to
Viewpoint11 For credit investors, the equity market can be an important source of information about growth expectations, and at times can serve as a leading indicator. However, recent developments in some defensive sectors – traditionally favored by equity and credit
Asset Allocation Views As the economic expansion aged and volatility increased throughout 2018, consensus shied from viewing the U.S. expansion as likely to continue for the foreseeable future to believing that we are in the late stages. We believe we
Viewpoint The fourth quarter of 2018 witnessed an uptick in credit market volatility, as investors grew increasingly risk-averse in the face of falling equity markets, ongoing U.S.–China trade tensions and geopolitical risks such as Brexit. Broader market weakness spilled over
Asset Allocation Outlook CIO Investment Outlook As the economic expansion aged and volatility increased throughout 2018, consensus shifted from viewing the U.S. expansion as likely to continue for the foreseeable future to believing that we are in the late stages.
We propose a functional principal components method that accounts for stratified random sample weighting and time dependence in the observations to understand the evolution of distributions of monthly micro-level consumer prices for the United Kingdom (UK). We apply the method
The Bank’s mandate is to conduct monetary policy to promote the economic and financial well-being of Canadians. Canada’s experience with inflation targeting since 1991 has shown that the best way to foster confidence in the value of money and to
Monthly Market Update | January 2019 December’s equity market sell-off led global equity markets into the red, marking the first time that U.S., non-U.S. developed, and emerging market equities all ended the year in negative territory since 2008. In fact,
Maintaining flexibility, being currency aware and searching out pockets of values are themes for 2019. PIMCO’s European wealth management team recently met to discuss the state of markets and our outlook for intermediary clients in Europe. Drawing on a survey
Recovery, Rebalancing and Rotation Last year was one that many investors in Asian bonds might like to forget. The Bloomberg JPMorgan Asia Dollar Index was 4% weaker, the benchmark J.P. Morgan Asia Credit Index (JACI) was down 0.77% overall, and
Income Strategy Update: Disappointing macroeconomic data and ongoing political uncertainty have weighed heavily on the euro. Does this pessimistic picture mean there’s room for a rally?
Monthly Market Update Volatility returned and pulled markets across the globe into the red. The sell-off in risk assets appeared to have several culprits: hawkish Fed comments, rising interest rates, signs of peak earnings growth and political fragility in Europe.
Monthly Market Update Investors’ focus centered on emerging markets as less supportive external conditions exacerbated the situation in select countries. Emerging markets (EM) faced a more challenging macro backdrop coming into August, with a strengthening U.S. dollar and the Federal
Monthly Market Update Emerging markets (EM) faced a more challenging macro backdrop coming into August, with a strengthening U.S. dollar and the Federal Reserve on the move. Two economies in particular garnered headlines. The month began after Turkey’s central bank
When choosing a strategy for monetary policy, policymakers must grapple with mismeasurement of labor market slack, and of the responsiveness of price inflation to that slack. Using stochastic simulations of a small-scale version of the Federal Reserve Board’s principal New
We find that (1) an intensification of competition increases the efficiency and fragility of banks; (2) economies can avoid the fragility costs of competition by enhancing bank governance and tightening leverage requirements; and (3) the monetary transmission mechanism is materially
I study how online competition, with its shrinking margins, algorithmic pricing technologies, and the transparency of the web, can change the pricing behavior of large retailers in the U.S. and affect aggregate inflation dynamics. In particular, I show that in
Over the last decade we have seen the start of a revolution in Artificial Intelligence, Big Data and Fintech that is changing many industries, including financial services. In my comments I want to focus on two aspects of these emerging
Such quotes pervade the discussion of international trade in the United States. Yet this particular quote continues: “Jobs that should be offered to Brazilians are being delivered on a tray to the Chinese, Koreans, Indians, etc … .” It was
We document that the rise of factors such as software, intellectual property, brand, and innovative business processes, collectively known as “intangible capital” can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features
A rich understanding of macro-economic outcomes requires taking into account the large (and increasing) differences between firms. These differences stem in large part from heterogeneous productivity rooted in managerial and technological capabilities that do not transfer easily between firms. In
Monthly Market Update Global trade tensions appeared to lose some bite with a thawing of U.S.-European trade relations, though some conflicts continued. A meeting between President Donald Trump and European Commission President Jean-Claude Juncker led to an apparent détente between
Midyear Update The global trade order that has existed for decades is being disrupted. Several economic indicators are running hot (see Figure 1) even as the current U.S. expansion has begun its tenth year. Volatility is higher as some investors
Monthly Market Update Global trade tensions appeared to lose some bite with a thawing of U.S.-European trade relations, though some conflicts continued. A meeting between President Donald Trump and European Commission President Jean-Claude Juncker led to an apparent détente
