“It’s unclear why this hasn’t been a significant driver of markets across the board… maybe we just haven’t hit the threshold,” exhorts $234 billion bond fund Invesco’s Ray Yu. The head of the firm’s macro research told Bloomberg that a general theme of political risks increasing or political risk premium has been prevailing for the last few years and we are now seeing tension between established political regimes and populist movements.
But it appears Mr. Yu has had his lightbulb moment, as he adds:
“Investors are still dealing with aftermath of negative rates, super-accommodative monetary policy globally and structural need for income, which is mobilizing capital flows in unprecedented ways; “maybe that’s what we’re seeing overcome some of the concerns.”
In his view, the safest strategy in a world of this much uncertainty is to buy American, noting that post-Brexit and other risks, “we’ve gotten a lot more constructive on the dollar.”
Yu added that a Fed hike later this year would likely be warranted and the market is probably underpricing chance of a move sooner than expected…
“Everyone’s sort of gotten too comfortable with developments in China,” warning that “that story is not over.”
Investors “really need to stay atop what policy makers are thinking or where they think they are in terms of executing structural plan,” warning that this is “not an area investors should get too complacent about.”
Which is ironic as not only is the Yuan tumbling to fresh cycle lows but rate-hike odds are quietly resurgent…
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