Morgan Stanley: Too Much of a Good Thing?

A combination of strong U.S. economic data, heightened expectations of additional U.S. Federal Reserve (Fed) tightening and high valuations pushed yields upward. Fortunately, still modest inflationary pressures means the Fed is likely to continue its slow and steady pace of raising interest rates, which will not jeopardize the U.S. economy’s solid economic growth. On the other hand, this pace of tightening is proving to be more problematic for the rest of the world, particularly emerging markets (EM). At present we believe the strong growth data, which is probably still good for the global economy in addition to the U.S., is not a threat to risky assets, although discrimination among EM remains key. While some may argue too much U.S. growth is no longer good for the global economy, too much of a good thing can sometimes be wonderful. We will see!

Here you can download the full global fixed income bulletin "Too Much of a Good Thing?"