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Chart of the week

Global yields signal low income ahead

10-year government bond yields around the world: 2013 versus 2018

July 13, 2018 | 1 minute read
10-year government bond yields around the world: 2013 versus 2018
  • Fed projections point to continued strong economic growth in 2018. The Federal Reserve Bank of St. Louis’s GDPNow tracker estimates that Q2 2018 economic growth will reach nearly 4%, which would be the fastest growth since the second quarter of 2014.1
  • Chicago Fed President Charles Evans noted in an interview this week that the fundamentals of today’s economy remain very strong. Evans added that he’s looking for economic growth of approximately 3% for the year, far above the Fed’s underlying median estimate of potential GDP growth, which is only 1.8%.2,3
  • With solid economic growth top of mind, investors increasingly expect the Fed to raise rates four times this year. The market-implied probability of four or more rate hikes in 2018 has risen from approximately 40% to 55% since the beginning of July.4
  • Yet markets remain skeptical on the durability of future economic growth. Ten-year U.S. Treasury yields, which often serve as a proxy for expected economic growth, are only slightly higher than they were five years ago.
  • Furthermore, the U.S. 10-year yield is significantly higher than that of many other developed countries. An environment in which government bond yields around the world remain generally low would likely limit the potential rise of the Treasury note, underscoring the challenges income-seeking investors may continue to face.

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