Fixed Income Strategy: Waiting For The Fed

• Fitch Solutions maintains a neutral outlook on US and other Developed Market (DM) bond markets over the short term on the back of opposing factors. After having fallen between May and July, US bond yields could trade sideways within a wide range in the short term as investors weigh incoming economic data that could remain strong in the coming weeks. 
• However, at the same time, investors are still waiting for additional signals that the Fed could tighten monetary policy sooner than expected. Recent history suggests that the Fed’s chair Jerome Powell could signal a slightly more hawkish tone at the 2021 Jackson Hole Economic Policy Symposium, which will take place on August 26-28. 
• In EMs, there has been a clear gap between Asia and Latin America and emerging European countries due to epidemiological developments. The vaccine rollout in Asia has lagged significantly, resulting in restrictions being maintained across most economies and forcing central banks to maintain a dovish tone to support the economic recovery. Elsewhere, several central banks across Latin America and emerging Europe have already hiked interest rates aggressively as inflation has been rising, a trend that is likely to remain in place until end-2021. 
• In EM economies where central banks have been raising interest rates, bond yields have risen significantly the year-to-date across the curve.

 (Source: Fitch Solutions)