First Quarter 2021
Global economies continued to recover from pandemic-driven weakness, which lifted risk assets in the fourth quarter. While vaccine news aided the backdrop, financial support from central banks and federal governments will remain crucial, as pandemic headwinds persevere. We believe ongoing challenges underscore the importance of active, experienced fixed-income portfolio management.
Economy. Global growth is likely to continue, but the rate largely depends on the trajectory of the virus and the pace of vaccine distribution. In this environment, and with lockdowns still providing headwinds, we expect central bank stimulus and federal government aid to help support economic growth.
Rates. U.S. rates have increased modestly, and the yield curve has steepened. We expect rates may stabilize, given Fed stimulus and modest growth. Meanwhile, European yields are still unusually low amid new coronavirus-related lockdowns.
Inflation. We expect global inflation to remain modest in the near term. Longer term, massive government debt, a weaker U.S. dollar and onshoring trends among businesses should push U.S. inflation higher. In our view, these influences aren’t adequately reflected in the market, highlighting the value of inflation-linked bonds.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
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