In its take on global fixed income, Goldman Sachs Asset Management discusses some of the factors impacting the debt market around the globe. The investment management firm discusses the macro environment, central bank policy and the state of fixed income assets.

Talking about the US, the GSAM says that the US is seeing disinflation and the UK labour market continues to remain tight. From a liquidity standpoint, the US is estimated to issue between $600 bn – $1.4 tn of US Treasury bills to replenish the Treasury General Account (TGA).

“The sharp increase in supply will likely push T-bill rates higher, however, we believe the supply will be well-absorbed by money market funds who are participating in the Federal Reserve’s Reverse Repo Program (RRP),” writes GSAM. “We expect liquidity provided by the RRP and the Fed’s Standard Repo Facility to curtail the risk of a funding market stress scenario in the repurchase agreement market as seen in 2019.”

The investment manager says that higher T-bill rates would mean better yields for other instruments such as investment-grade corporate bonds and agency mortgage-backed securities.

On the policy side, GSAM expects the US Fed to deliver a final 25 bps rate hike in July. The investment management firm sees ECB delivering another 25 bps rate hike next month.

“Tighter policy appears to be translating into tighter financing conditions and underlying inflationary pressures have begun to ease,” says GSAM.

On the other hand, when it comes to the Bank of Japan, the asset manager says that despite the rigid stance of the central bank, it expects gradual normalisation of policy at some point later this year.

Goldman Sachs Asset Management then goes on to discuss asset classes such as US Investment Grade, US High Yield, and US Leveraged Loans, while giving a snapshot of central bank rates and the rate hike outlook.

View the complete insight here.