The week ahead will be very eventful for the fixed income markets as the Federal Reserve (Fed), Bank of Japan (BOJ) and Bank of England all meet. On Friday, the market will receive another key piece of economic data with the release of the July employment report, which is expected to remain strong. In the wake of last week’s 4.1% Gross Domestic Product growth, fixed income investors will be watching this week’s events closely.
One thing to look for with the Central Bank meetings is if the BOJ will amend its current bond buying program. With 10-year Japanese Government Bonds (JGBs) trading around 10 basis points (bps), investors question whether the BOJ will officially move off of its negative interest rate policy. A likely occurrence is the Bank of England raising its benchmark rate by 25 bps to 0.75%, the first increase since last November. Additionally, look for any signal from the Fed that indicates whether one or two more interest rate hikes are coming this year. No action is expected at this meeting; however, the statement will most likely provide clues regarding the possibility of a September rate increase.
I expect bond yields to push higher globally as economic conditions remain favorable and inflation edges higher. I continue to remain cautious about equities coming off Facebook’s large drop in share prices last week.
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