Last updated: 10:52 / Monday, 17 October 2016
Analysis by Morgan Stanley

Central Bankers Debate Policy

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Central Bankers Debate Policy
  • Markets have been predicting more of the same over the next few months, and there is some chance expectations will not be met, in a bearish way.
  • Morgan Stanley Investment Management’s Global Fixed Income Team believes EM debt should perform reasonably well

The Morgan Stanley Investment Management’s Global Fixed Income Team believes the upcoming months, including a full calendar of central bank policy meetings in September, will be key to watch as central banks reconsider their thinking, potentially shaking up the lull in sovereign bond markets.

Markets have been predicting more of the same over the next few months, and there is some chance expectations will not be met, in a bearish way. However, they said, adjustments will likely only result in a correction in government bond markets, as we maintain that the trend in central bank policy will be supportive of spread products and carry strategies. “But we are careful with our duration and do not want to be too long, given how far yields have fallen and how optimistic markets have been on monetary policy”, pointed out.

With moderate global growth and low inflation the most likely path forward and emerging market (EM) fundamentals stabilizing-to-turning, the Team believes EM debt should perform reasonably well.

“We continue to monitor signs that the credit cycle is maturing. However, we believe the strong technical backdrop afforded by easy central bank policy will continue to dominate the global fixed income markets going forward. Investors seeking returns will continue to buy global credit, while U.S. credit will likely outperform, as relatively attractive yields in the country will continue to attract foreign buyers”, concludes.

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

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1591138 Exp. 09/15/2017

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