EV Forward: Interest Rates

Timely insights from portfolio managers and industry experts on key financial, economic and political issues.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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      By Eric Stein, CFACo-Director of Global Income, Eaton Vance Management

      Boston - After a "mid-cycle adjustment" of three 25 basis point cuts this year, U.S. Federal Reserve (Fed) policymakers seem content for the time being to keep monetary easing on hold.

      The U.S. Treasury yield curve has begun to steepen — a very positive development that may well continue going forward.

      A flat yield curve sends a negative signal to financial markets and other economic actors, indicating that monetary policy is too tight and adversely affecting the financial transmission mechanism via the banking sector to the real economy.

      Breakeven inflation rates measure the difference between the yields of nominal bonds and comparable-maturity inflation-linked bonds, reflecting market expectations for inflation; we believe inflation breakevens have been too low globally — even below current inflation rates in many markets.

      Over time, we expect breakevens to go up as they revert to the current level of inflation and as the actual level of inflation rises in line with the commitment of central banks to hit or even exceed their inflation targets.