This, Marasciulo says, is explains the switch in focus to fiscal stimulus measures, which are directly controlled by governments and politicians rather than central banks.
Is government spending a panacea for economic misalignment? Charles McKenzie, chief investment officer for fixed income at Fidelity International, suggests not pointing out that outside the UK there is less room for fiscal expansion, in part due to the EU-wide Stability and Growth Pact.
While predicting that the Fed will lift interest rates by 50bps in 2017, McKenzie sees a very different scenario playing out elsewhere.
“In contrast in the eurozone, low core inflation and ample economic slack should drive an extension and loosening of the parameters governing asset purchases but we see less chance of further rate cuts,” he says.
“Japan is also likely to see additional monetary stimulus, while the UK should keep rates on hold in the face of higher inflation.
“Overall, while short term signals point to higher yields, we expect the combination of accommodative monetary policy globally and a reassertion of secular forces will keep a lid on government yields in 2017.”
