The U.S. fiscal cliff is not likely to send the economy into a recession, according to the October Bond Market Observations from
For bond investors, Standish said this means there could be opportunities in U.S. corporate credit markets. Both U.S. investment grade and high-yield bonds over the last 20 years have posted positive excess returns when U.S. economic growth ranged between one percent and two percent, the report said.
Standish believes that a combination of recent actions by the Fed and an expected compromise deficit reduction package would be enough to prevent a recession. The Fed's asset purchase program has eased financial conditions and supported the housing market.
If no action is taken to avoid the fiscal cliff, tax hikes and spending cuts amounting to 4.8 percent of U.S. gross domestic product (GDP) will go into effect on
"While we don't see much room for cooperation between the Democrats and the Republicans on addressing the fiscal cliff, we also doubt either party will want to be held responsible for engineering a U.S. recession by allowing the entire
Among the deficit-reduction efforts that Standish does expect will be an end to the two-percentage point reduction in the
Standish also expects the
"Under our base case scenario, the U.S. economy will suffer a fiscal drag of roughly 1.4 percent of GDP next year and U.S. real GDP growth will decelerate from 2.1 percent in 2012 to 1.4 percent in 2013," Higgins said.
TNS C 71NayakRashmita 121026-4084150 StaffFurigay
|Copyright:||(c) 2012 Targeted News Service|
|Source:||Targeted News Service|