Curmi & Partners

Q1 Update and Outlook

Fixed income markets have been well supported by a number of factors including slow but positive growth, no acceleration in inflation, a stable default scenario and robust risk appetite. The view that the European Central Bank’s (“ECB”) extraordinarily accommodative policies have peaked continued to gather pace. During the ECB conference of March 2017, with interest rates and Quantatitive Easing (“QE”) measures remaining unchanged, ECB president Draghi commented: “There is no longer that sense of urgency in taking further actions. That urgency that was prompted by the risks of deflation isn’t there”. The ECB also highlighted the improving picture illustrated by most economic data releases. In the US, the Federal Reserve (“Fed”) raised interest rates by 25bps to 0.75%-1.00% in March, in what was a much expected move and the 3rd rate increase since the 2008 financial crisis. The Fed’s message was that the economy continues to improve at a moderate pace and that rates will continue to rise. However, a cautious approach to rate hikes was highlighted, and it was also noted that the Fed will be monitoring the impact of the expected shift in spending and tax policies implemented by Trump.