Leaders-Laggards

Even though economists have largely been downgrading their forecasts, investors haven't been abandoning risk just yet. Utilities are kind of bouncing around here, but the uptrend that’s been in place since the beginning of July is still hanging on. The trading range on long-term Treasury yields looks like it’s consolidating here. The strength we’ve seen in emerging markets is finally carrying over to non-U.S. developed markets.

Treasuries look like they’re moving sideways again, which is a shift from the steady gains that government bonds have enjoyed since March. The uptrend for TIPS relative to the broader Treasury market is still intact, although long-term breakeven rates have remained steady for the past six months. The Fed may provide an assist, but a slowing recovery could be a problem.

Not surprisingly, high yield bond prices got pulled up nicely in the risk rally. It’s the same story here as it is for U.S. high yield. The dollar pulled back as the Fed took a bit more of a dovish tone to policy updates last week than some were expecting.