FIXED INCOME INSIGHTS

5 wildcards for fixed income in 2019

Jan 17, 2019
By Jeffrey Rosenberg

With 2018 in the rearview mirror, we look at five of the key issues whose resolution will greatly determine the course of investment returns in 2019.

Fixed income highlights

  • Policy reversals relative to expectations drove much of the unique pattern of returns in 2018. From trade to the Fed, fiscal policy and global growth, asset returns which surged in 2017, slumped in 2018, for some hastening a new bear market. Whether such a dire outlook proves correct in our view hinges on the key policy responses by the Fed to financial conditions tightening and to President Donald Trump’s trade agenda.
  • Slowing inflation and tightening financial conditions as growth cools account for much of the rationale behind the expected slowing in the Fed’s policy normalization path. But if the Fed pauses on account of slowing economic growth, that may be too late for investors.
  • Trade disputes clearly top the list of risks to the outlook this year. This risk most clearly represents a “coin flip” for forecasting odds but also holds the key to easing investor anxiety.

What is underlying market expectations

Growth, inflation and trade top the list of issues that will shape the year ahead.

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5 wildcards for 2019

With 2018 playing out far differently than originally expected, we highlight five major wildcards every investor should be aware of this year.

  1. Growth - What if U.S. growth doesn’t slow as much as expected?
  2. Inflation - What if inflation finally shows up?
  3. Trade - How will trade uncertainty resolve?
  4. Interest Rates - Will tightening liquidity reveal late-cycle credit vulnerabilities?
  5. China - Will the slowdown in China’s growth slow?

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Jeffrey Rosenberg
Jeffrey Rosenberg, CFA, Managing Director, is a senior portfolio manager leading our alpha-seeking long-only and factor efforts for Blackrock’s Systematic Fixed ...
Tom Parker, CFA, Managing Director, is Chief Investment Officer of Systematic Fixed Income ("SFI") at BlackRock.