Global Fixed Income Strategy - August 2018

Monthly insights and updates from the Invesco Fixed Income team

Sep 3, 2018 | Invesco Fixed Income

In its latest monthly update, Invesco Fixed Income (IFI) turns the spotlight on the eurozone economy, which had been underperforming in the first half of the year. Despite the disappointment, the team believes that the European economy will pick up speed for the rest of the year. However, heightened risks will continue to unnerve markets.

The forces that dragged on European growth are expected to abate over the next few months. This should bring the resilience in the eurozone’s economic fundamentals to the fore, and they are looking good. As such, IFI sees that the economy will reaccelerate over the coming months. However, heightened risks, including Turkey’s economic stability and global trade tensions, may cloud the outlook. While the team thinks that Turkey is not a systemic risk for the European economy, the dampening of risk sentiment may spillover, and its impact may be hard to quantify. Separately, an escalation of global trade tensions is likely to impact economic activity directly. As such, increased volatility should continue to ruffle markets for the rest of the year.

Elsewhere, IFI is keeping its outlook neutral on interest rates in China. Though the team is expecting the government-bond yield curve to flatten, and thinks that short-term rates may underperform long-term ones, the upcoming inclusion of Chinese onshore bonds into major global indices should stoke foreign demand for the asset class, especially those issued by governments and policy banks.

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