US growth has clearly peaked and is now slowing. This and an absence of movement on rates from the US Federal Reserve suggest that bond yields in the US are likely to remain capped, even if funding costs at the front end of the curve remain elevated.
In addition bond markets outside the US are likely to welcome the narrowing of US growth exceptionalism. Stressed non-US markets are likely to continue to normalise. With few active central banks outside the US, bond spreads against the US are likely to be more stable in 2019.
Asian currencies are likely to benefit from the improvement in risk appetite and the fall in commodity prices. Conversely, the $A and $NZ are likely to continue to be challenged because of their exposure to commodities.
Richard Yetsenga is chief economist at ANZ
This is an edited version of an ANZ Research report. Registered clients can read the full report at ANZ Research.