Multi-Sector Bonds

So far this year, the spread between two-year and 10-year US Treasury yields has declined from 77bp to 51bp.

For fixed income investors, the start to 2022 has been trickier than any we have experienced for many years, but we think this difficulty is to be expected and aligns with our macro view.

After a challenging January, which saw markets beginning to come to terms with a very hawkish Fed pivot and rising Russia-Ukraine tensions, it is worth taking stock of the moves we have seen in fixed income over the last few weeks.

What we are currently experiencing is a disconnect between monetary policy, the economy and the markets, a disconnect that in our view will struggle to survive much longer.

Our base case is for a continuation of quite high growth and a modest inflation overshoot. For bond investors, positioning for stagflation could be a dangerous trade if that base case bears out

With ample job openings, inflation well ahead of target, financial conditions that are certainly not tight and strong economic growth, the obvious question is what does the Fed need to see to finally start tapering its asset purchases?

Despite the impressive returns of Euro HY over the last year or so, the backdrop for the asset class continues to suggest there is more upside to come.

This supply surge can be very welcome for those investors with cash to put to work, though it is also eyed with caution.

When combined with other prevalent market dynamics, the favourable ratings trend paves the way for a highly supportive fundamental terrain as we advance through the cycle and one that is ideal for portfolio managers selecting credits.

We agree that banks are sitting with an abundance of excess capital and will use some of it to repay shareholder support. However, capital buffers will remain elevated for some time to come,

So far, lockdown restrictions have suppressed each wave of the virus; will the competent authorities have the conviction to see this latest wave through without erring on the side of caution once again?

Today marked the arrival of a long expected event, namely the inversion of the US yield curve between two and 10 years. This is an important event as historically it has been a very reliable indicator of impending recession. History tells us that once the 2s-10s curve inverts, on average a recession is a year to 18 months away.