Outlook for bond market brightens

Bonds

Two key reasons for an improved outlook for the bond market are the recent calming of trade tensions and last week’s decision by the Federal Reserve to cut interest rates for the third time this year.

“We see some calming of seas,” said Beth Ann Bovino, chief U.S. economist and managing director at S&P Global Ratings, who offered those explanations as part of her latest take on the U.S. economic outlook.

Beth Ann Bovino, chief U.S. economist and managing director of S&P Global Ratings

Brian Tumulty, The Bond Buyer

Bovino said the short-term outlook for what she described as the “late stage of an expansion” has improved since S&P Global issued an August report setting the possibility of a recession at 30% to 35%.

U.S. consumer spending has cushioned the economy and there remains “a fair amount” of job growth, Bovino said during an S&P sponsored breakfast a couple of blocks from the White House.

Trade tensions between the U.S. and China have eased since President Trump announced what he has described as plans to sign “phase one” of a new trade agreement with China in the coming weeks.

The yield curve — which caused fear of a recession earlier this year when short-term government securities had a higher yield than long-term government bonds — “has gone back to positive territory,” she said.

These factors have helped offset a drop in business investment and the “near recession” status of manufacturing, she said.

Bovino’s remarks came on the heels of a flood of economic news last week, highlighted by a quarter-point interest rate reduction by the Fed to a range of 1.5% to 1.75%.

In addition, the Commerce Department said preliminary data showed that economic growth slowed to 1.9% in the third quarter, dragged down by a 3% drop in business investment.

The Labor Department also reported last week that employers added 128,000 jobs in October, down from the 167,000 monthly average for the year so far and down from 223,000 in 2018.

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