We expect volatility to persist in the near term as the market deals with uncertainties surrounding the Fed rate hike decision and China. A defensive stance is recommended within the fixed income space.
The U.S. 10-year yield looks ready to re-test the ceiling of the previous downtrend...The recent weakness in oil prices brought back some very unpleasant memories from 2014. Implications for breakeven rates and credits are not so sanguine...We are at a crossroads and a cautious stance is warranted.
Divergences have emerged: countries on a tightening path (e.g. US and UK) were more or less on track until June; while countries on an easing path (e.g. Germany, Japan, & Australia) went off script, as policy trumped historical patterns.