Morgan Stanley: And the Beat Goes On, But for How Long?

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December picked up where November left off, with yields of government bonds falling and spreads tightening, for the most part, across the globe. 10-year yields in the U.S. fell by 45 basis points (bps) over the month, 42 bps in Germany, 64 bps in Canada, 46 bps in Australia, and 56 bps in New Zealand as inflation continued to fall and central bank policy paths were revised to include more rate cuts happening sooner than previously anticipated. Emerging Market (EM) assets performed particularly well, as the U.S. dollar fell and the prospects of rate cuts increased. Credit spreads in both investment grade and high yield corporates also tightened, with the U.S. and Euro-area performing in-line with one another, and high yield outperforming investment grade. Securitized credit spreads continued to grind tighter and pick up momentum after lagging the performance of their corporate counterparts in November.

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