27 May Fixed Income Perspectives – The Eurozone Gets a Reprieve, for Now
With political risk to the European Union easing and the eurozone economy strengthening, the European Central Bank may taper its stimulus program and lead eurozone yields higher. Meanwhile, the U.S. Federal Reserve will implement three rate hikes this year.
Voya Investment Management – Fixed Income Perspectives – May 2017
Independent centrist Emmanuel Macron won the French presidential election this month, defeating far-right candidate Marine LePen by a significant margin. While Mr. Macron’s win was viewed as the most favorable outcome for France and the European Union, it was broadly expected. Market reaction was muted with the exception of the move in the euro, which broke above the $1.10 barrier versus the U.S. dollar for the first time since November. One of Macron’s main challenges will be to reduce unemployment, which has stubbornly held above 10%. Another key challenge will be to advance his desired strong ties to the European Union without inflaming further populist sentiments. However, with political risks more or less easing and continued strong economic data out of Europe, all eyes will be on Mario Draghi and the European Central Bank as they consider tapering their quantitative easing program. This will lead euro area yields higher, led by German Bunds, and subsequently strengthen the euro.