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Newsletter August 2017

FIXED INCOME UPDATE - FED SAYS IT IS READY TO SELL ITS BONDS

Global bond yields rose on the expectation that central banks around the world have agreed to start removing accommodative measures. The yield on Germany’s 10-year government bund (bond) has risen from a negative yield last year to 0.58% in mid-July.

The U.S. corporate bond market continues to provide funding for the mega merger deals in the equity markets. The issuance of such corporate debt at low rates is supported by the unparalleled demand for U.S. dollar denominated debt. Even at ultra low rates, institutional buyers such as pension plans and mutual funds have an ongoing voracious appetite for fixed income assets that offer consistent income and return of principal.

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 As the Fed prepares to start unloading portions of its massive $4.4 trillion inventory of government bonds, traders are eager to see how well markets will absorb the extra supply and what disruptions might occur.

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Sources: IMF, Federal Reserve, Bloomberg