The Fixed-income Environment

The Fixed-income Environment
June 01, 2010 Posted by: Ninh Chung

The global economic recovery remains in question, as evidenced by the instability in the euro zone and 10 percent unemployment in the United States. Although the U.S. is seeing robust hiring in the manufacturing sector, the impact is diminished because the service sector constitutes 70 percent of U.S. gross domestic product. Complicating the global recovery scenario will be Europe’s prolonged period of relatively weak economic performance due to austerity measures imposed as result of the nearly $1 trillion rescue package.

In the short term, U.S. government fixed-income securities could outperform other fixed-income sectors as expectations for federal funds rate hikes in 2010 are pushed out to 2011. However, the upside is limited by historically low interest-rate levels. Under these conditions, corporate cash investors are left with limited investment options.

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