28 Apr Fixed Income Perspectives – ‘Spring Hopes Eternal’
Voya Investment Management – Fixed Income Perspectives – April 2016
The spring forward in risk assets continues to surprise some observers given the lack of any real warming in the U.S. economic outlook. To wit, on the supply side growth is still tethered to a historically low productivity level; on the demand side, meanwhile, U.S. consumers are showing some signs of fatigue and global excess capacity remains significant. That said, we believe the primary factor inspiring the latest rally in risk assets is the same one that drove risk takers into hibernation last fall: Chinese currency movements. The rapid depreciation of the renminbi that began in November and extended into January of this year spawned fears both of excessive leverage in Chinese financial institutions and capital outflows, pushing down the prices of risk assets. In contrast, the mid-February rebound of the currency gave risk assets new life, admittedly with a boost from a more dovish Fed.