Hasenstab: Focus on Fundamentals in US, Emerging Markets
In this video, Templeton Global Macro CIO Michael Hasenstab shares his thoughts on why he thinks US Treasury yields have moved higher. He also gives his take on recent weakness in emerging markets.
The full transcript of the video follows.
US Economic Data Supports Higher US Treasury Yields
Michael Hasenstab: We have an acknowledgment that the US economy is actually pretty strong. Whether you look at the [Institute for Supply Management] numbers, the labor data, even the [US Federal Reserve’s] conversation tone is changing, to acknowledge that, yeah, we’re at full employment, you know, the economy is growing quite strong. You look at [gross domestic product] numbers—you name it—things are strong, and as a result, Treasuries have now started to gap higher, and we’ve had a pretty big move.
Michael Hasenstab: We have seen US [Treasury] yields rise, the US dollar strengthen against G-10 currencies, but the US dollar weaken against those emerging markets with decent fundamentals. We’ve seen some stability in places like Brazil. So we think it is very possible with a moderate rise in US yields—not so much that you trigger a recession, but a moderate rise in yields—that the US dollar will strengthen against the euro or the yen or the Australian dollar, which have very accommodative policies. But that positive economic backdrop will be good for emerging-market aggregate demand and the demand for their exports. And since the interest rate differential is still significant, they will still attract capital.