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Market Views - Economic Outlook 2017

Outlook 2017

Bonds

Interest rates have been steadily falling for the past 35 years. The potential for higher rates is afoot. Wages, one of the main contributors to inflation, is rising. Inflation expectations are near multi-year highs and suggest overall inflation could be above the Fed’s target rate of 2%. Lower demand for U.S. Treasuries across the globe could also affect rates.

Even with a long-term outlook of higher interest rates, we have found some potentially sound approaches to bond investing. These include less volatile shorter-term instruments. Certain investments such as Treasury Inflation Protected Securities (TIPS) and Floating Rate notes should provide price stability when rates move higher. High-quality municipals may be attractive. The recent sell off after the election could provide a short-term buying opportunity.

Positives Negatives
Positive Repatriation could reduce borrowing needs Negative 35-year era of lower rates may be ending
Positive Potential overreaction to Trump proposals Negative Wage inflation picking up
Positive Municipal bonds attractive Negative Foreign Treasury selling suggests low demand
Negative Low yields mean greater volatility
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Distributed by ALPS Distributors, Inc. 1290 Broadway, Ste 1100, Denver, CO 80203 (Member FINRA)