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Video: Central bank tightening may create more volatility in 2019

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      By Justin H. Bourgette, CFA, Portfolio Manager, Global Income Team

      Boston - The volatility that started to emerge in the fourth quarter of 2018 could foreshadow more turbulence this year as central banks continue to pull back on stimulus.

      We expect the volatility to play out across global markets, including credit, equities and interest-rate markets. Specifically, this view stems from the reversal of global quantitative easing (QE) from central banks, to quantitative tightening (QT), particularly at the Federal Reserve and the European Central Bank (ECB).

      (Tap or click the image below to view the video.)

      Blog Image Bourgette 19 Outlook Jan 11

      Therefore, the private sector will have to start absorbing more government debt. In the U.S. alone, QT will result in about $30 billion a month of Treasurys that the private sector now needs to absorb. This could have ramifications for other credit markets, such as corporate bonds.

      Overall, a top challenge for 2019 is having the ability to navigate markets in which central banks are withdrawing liquidity from the markets, rather than providing it. In our view, this heightens risk and could lead investors to be more discerning when looking at fundamentals and valuations.