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  1. Risky 2020 May Bring Mini Bear Market for Bonds
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Risky 2020 May Bring Mini Bear Market for Bonds

Ben HernandezNov 26, 2019
2019-11-26

A better-than-expected economy is being anticipated by global investment firm Goldman Sachs, which could lead to a mini bear market for bonds. A move higher in interest rates could feed into bond weakness, but nothing comparable to a landslide in prices.

“We are optimistic about US growth, but the mature business cycle limits the possible upside beyond the very near term. There are also plenty of risks, including the trade war and the possibility that the next Congress will reverse the 2017 US corporate tax cut,” they wrote in a report.

The Federal Reserve alluded to the possibility of no more rate cuts in its last interest rate policy meeting. The data-dependent central bank could pump the brakes on rate cuts should the economy exhibit growth in 2020.

“We expect moderately better economic and earnings growth, and therefore decent risky asset returns” across regions, they wrote.

Furthermore, the firm is optimistic about global growth albeit not overly exuberant with a slight rebound in Treasury yields.

“So although we are cautiously optimistic on the global economy, we forecast only moderately higher 10-year Treasury yields next year, targeting a rebound to 2.25%, mostly skewed toward the second half of 2020,” the firm added. The 10-year was at 1.76% Friday.

This, of course, should also feed into a stronger dollar should rates move higher in 2020.

“With the Fed on hold and inflation unlikely to take off, we would discourage positioning for a major bear market in US rates next year, even with somewhat better growth,” they wrote.


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This article originally appeared on ETFTrends.com.

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