Weekly Newsletter #18/2015

Share this post

After reaching new record highs global equity markets have been experiencing a slight correction. US GDP growth was a disappointing 0.2% for the first quarter this year. Market analysts expected 1.0% after reported 2.2% and 5% in the quarters before.

Slow US growth raises the questions for US interest rates hikes again. US Fed left Target Rates unchanged and did not give guidance any change. So what rates is the market currently trading for the near term? As of end 2015 and based on US forward rates the market is trading a rate increase of about 25 bps for maturities below 5 year and virtually no change for maturities of 10 years and more. As of 3 years from now the short end is expected to increase to about 2% p.a. while  maturities of 10 year and more yield about 2.7% p.a. See our chart for current and expected yield curves in 1, 2 and 3 years.

Erwin Lasshofer and his INNOVATIS team do not expect significant rates any time soon. Our reasoning is based on a strong US Dollar and low crude prices. Now GDP growth is slowing down – faster than expected. If this persists there is even less need or reason for rate hikes.