Why tensions abroad threaten the market in September

Market Realist

Must-know: Key threats in fixed income markets (Part 2 of 2)

(Continued from Part 1)

More threats ahead

Aside from the previous domestic factors we’ve discussed, there are several other factors abroad that can alter the U.S. fixed income markets.

Tensions abroad

German elections are another key issue, as Angela Merkel, Germany’s Chancellor since taking office in 2005, reaches the end of her term. She led the country through the European crisis and maintained leadership in the many discussions surrounding the European bailout. Her popularity has slightly decreased in recent months, jeopardizing her re-election. A change in leadership could alter the recovery course that both Germany and Europe as a whole have followed in recent years. Elections are due in less than three weeks.

Macroeconomic data from Europe is pointing towards a more optimistic recovery, though the recovery seems to be polarized. Germany, for example, is showing a strong recovery, while peripheral countries such as Italy, Spain, and Greece show no clear signs of progress. This uneven recovery could lead once again to instability in the region that would cripple the recovery.

Finally, potential U.S. military action against Syria would certainly rattle the markets. After the U.K. parliament voted against U.K. involvement, President Obama extended his timeline and requested a vote from Congress. It’s uncertain now whether the attack will happen.

All these events may affect the markets and swing them one way or another. While it’s likely that rates will increase and fixed income prices may drop, the only certain thing is that September will likely be more volatile than the past month.

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