appraised value | Weekly Bonds Bulletin

Weekly Bonds Bulletin




Monetary policy valued at market value
The markets have reacted to the hardening of the tone of the international central banks, but is this a temporary phenomenon or the sign of a change of trend? It is up to investors to decide what is most important for the asset markets: monetary policy or the underlying state of the recovery.

fundamentals
The US dollar and the Japanese yen have unsurprisingly been weak in recent weeks as a result of the relative shifts in the markets' outlook for monetary policy. Among the G10 currencies, the US dollar and the yen are the only ones not to have reacted sensitively to changes in expectations of central bank policy. On the other hand, the Canadian dollar and the British pound reacted strongly to the hardening of the tone of their respective central banks. US economic data has also disappointed and inflationary pressures remain weak: the index of private consumer spending (PCE) again showed depressed in May, the annual underlying PCE inflation now reaching only 1, 4%. The broader indicators of core inflation underscore the magnitude of the weakness in US inflation data in recent months.

In contrast to other G10 currencies, the USD and JPY have had little response to changing expectations of central bank policy


Source: Bloomberg; JP Morgan Asset Management; as of July 5, 2017


Quantitative valuations
Levels, dynamics and expectations for US yields suggest a further appreciation of the greenback against other currencies in developed countries. The Federal Reserve (Fed) should, in our view, raise rates again this year and make two or three more increases next year, which is likely to be a faster rate of improvement compared to other central banks in the G10 countries. . In the longer term, however, the US dollar seems overvalued relative to many other currencies. The trade-weighted dollar index has underperformed since the beginning of the current year, with a 6% decline reflecting disappointments with fiscal policy and sluggish growth trends. in the United States than in the other G10 countries.


Technical factors
Consensual positioning is now short on the US dollar, the speculative net positioning on the International Monetary Market becoming seller for the first time in more than a year, which confirms our own survey on the positioning vis-à-vis currencies .

What are the implications for bond investors?
The revaluation of monetary policies last week had such a pronounced impact on currencies as on rates. The recent weakness of the US dollar is a tactical opportunity for us to overweight, knowing that the Fed will proceed to more rate increases than the market predicts, and that investors may have been too quick to dismiss. the assumption of a normalization of monetary policy in the other G10 countries. While remaining attentive to the central banks' discourse in the coming months, we believe that the relative stability of interest rates will continue to favor bonding opportunities on the bond markets.

About the bond newsletter
Each week, J.P. Morgan Asset Management's Global Fixed Income Group, Currency and Commodities examines key issues affecting bond investors through the lens of its Fundamental, Quantitative Valuation and Technical (FQT) research framework.

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