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Patience is no longer a virtue for Fed Chairman Powell as the increased uncertainty has moved the Fed closer to implementing easier monetary policy.
The increased uncertainty around global trade and weakening data in the manufacturing sector has pushed the committee to take a more dovish stance on interest rate policy for the remainder of the year. It appears that market participants have nudged the Fed closer to the idea of “insurance” rate cuts in order to extend the current economic expansion. Market expectations for a rate cut at the July 31 meeting are currently at 100%, but it’s unclear to investors whether the Fed will implement a 50 basis point cut or tactfully move policy rates lower by only 25 basis points and make further cuts later in the year. At any rate, equity markets cheered the dovish tilt out of the Fed meeting as the Dow Jones Industrial Average and the S&P 500 reached new all-time highs in June.
Pressure remained on U.S. rates as the 10-year Treasury dropped below 2% for the first time since 2016.
Bond yields around the globe continued to drop in June as central banks, including the ECB and the Fed, signaled the possibility of implementing more accommodative monetary policy. As a result, the 10-year Treasury dropped below 2% for the first time since 2016 and the amount of negative-yielding debt across the globe reached $13.0 trillion for the first time. This level surpassed the previous high back in 2016 and is particularly worrisome as the scarcity of high-quality assets is becoming more apparent.
Source: Bloomberg, Allianz Investment Management LLC
The views expressed above reflect the views of Allianz Investment Management LLC, as of 07/2019. These views may change as market or other conditions change. This report is not intended and should not be used to provide financial advice and does not address or account for an individual's circumstances. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Allianz Investment Management LLC is a registered investment advisor that is a wholly owned subsidiary of Allianz Life Insurance Company of North America. Allianz Life Insurance Company of New York is also a wholly owned subsidiary of Allianz Life Insurance Company of North America.