Economic Growth

We perform a decomposition of yields moves across six major developed government bond markets to get to the bottom of what’s been driving the global bond selloff of the past eight months.

Short-term pain from Trump-related concessions, fiscal tightening amid a US and Mexican slowdown, and rising labor slack will weigh further on Mexican assets. But long-run, policy direction will capitalize on the nearshoring trend and resume the trend of Mexican asset outperformance relative to other emerging markets.

It may take several months for the tariff shock and policy uncertainty to filter through the real economy, but survey-based data are already sending a warning. Equities have priced in a lot of good news, and investors are too sanguine about the risk of a US recession.

Erdogan's rule continues to decline. Social unrest will persist, governance will erode, and the macro backdrop will deteriorate further. We recommend underweighting Turkish assets. 

The Fed held rates steady this afternoon, and the timing of its next move will be dictated by whether the tariff shock to inflation is transitory or more long lasting.