Fixed Income Perspectives

February 25, 2013

Unfortunately, the next several weeks donít appear to offer any relief from this calendar whiplash.
-Matt Toms, head of U.S. Public fixed income, ING
-Christine Hurtsellers, CIO fixed income, ING
-Mike Mata, head of multi-sector fixed income, ING

  • Despite its diminutive size, February has been a whirlwind. Eat and drink too much on Fat Tuesday, be reminded of our corporeal nature on Ash Wednesday, receive a sappy Hallmark card on Thursday, and cap it all off with a memorial for a bunch of ex-presidents on Monday. Unfortunately, the next several weeks donít appear to offer any relief from this calendar whiplash.

  • U.S. politicians have a March 1 date with unfinished fiscal business, and our expectation is that brinksmanship will remain the prevailing strategy. Even if a last-minute deal ultimately proves elusive, however, the impact of the sequester ó equal in scale to about one month of the Fedís expansionary bond-buying programs ó will not cause excessive long-term fiscal drag. March 8, meanwhile, will see the latest release of nonfarm payrolls data, which have become the primary indicator by which we divine the intentions of the Fed. Though the labor market should continue to show signs of improvement, the Fedís current policy of low target rates and aggressive quantitative easing will remain intact until the unemployment level finds its way down to 7%.

  • While Europe is not expected to contribute significantly to global growth this year, the tide has turned from complete economic meltdown to mere stagnation ó to the benefit of market sentiment. Though the euro is now approaching levels that could challenge the competitiveness of some countriesí exports, the ECB does not consider the currency risk to be an immediate concern. Italian political risk, on the other hand, has intensified as a potentially messy election looms.

  • Another noteworthy event on the horizon is the appointment of a fresh Bank of Japan governor. The new chief will inherit Prime Minister Abeís promises of bold action to jumpstart an economy that has stagnated for years. The BOJís approach to addressing these promises will have significant implications on the direction of the yen, which has already weakened considerably in 2013.

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