Estados Unidos

This week’s report takes a look at risk-adjusted return opportunities in US spread product.

The midterm election will bring some relief from US policy uncertainty. But this relief will be short-lived unless Republicans win the Senate, which is still too close to call. Global policy uncertainty and geopolitical risk will remain high.

On their third quarter earnings calls, the largest banks indicated that their household and business customers remain in surprisingly robust shape. We interpret their observations as supporting our constructive near-term take on the economy and financial markets.

Is a Plaza Accord 2.0 necessary? If so, why? If not, what could stem the rise in the dollar, or will it continue to overshoot? In our view, there are fundamental reasons not to bet on a new accord, but that does not necessarily help with investment strategy.

The Fed’s asset sales are unlikely to lead to an additional outsized impact on long-maturity government bond yields beyond what expectations for the path of the fed funds rate would justify. However, the stance of monetary policy has tightened substantially over the past year, and is set to tighten even further over the coming several months. As such, investors should be focused less on the ostensibly unknown risk from the Fed’s balance sheet reductions and more on the known risk of conventional policy tightening, which is currently quite acute.