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Matthias Knab, Opalesque: Russ Koesterich, Head of Asset Allocation for BlackRock's Global Allocation Fund, writes on Harvest Exchange:
The second half of 2016 witnessed the rise of the "reflation trade", a trend that accelerated after the U.S. election. The thesis: The global economy was finally breaking out, inflation was firming and bond yields would be rising as bonds are sold. While parts of this trade remain in place, other manifestations have reversed , including bond yields. After today's turmoil, U.S. 10-Year Treasury yields are currently around 2.21%, below where they started the year.
What happened to the bond market meltdown and the thesis of rising rates?
Growth has yet to break out
By now everyone is aware of another disappointing first quarter for the U.S. economy. In part, a weak Q1 can be attributed to lingering seasonal quirks in the data. Still, the simple truth is that there is not much evidence that the economy is surging. Yes, job growth remains strong and consumers and small businesses optimistic. However, outside of the labor market actual economic activity remains modest. Adjusted retail sales are growing at roughly 4.5% year-over-year, in-line with the post-crisis average. While investment activity improved in Q1 and manufacturing is crawling back from its recession, industrial production remains muted. Finally, ...................... To view our full article Click here
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