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Interest rates have been trending upwards since mid-2020. This trend started with inflation pressures following the COVID supply chain problems. It then accelerated gradually as economies and labour markets recovered.
How long will this trend continue? Can bond markets find a new equilibrium in the near future?
As the crisis in Ukraine goes on, let’s take a closer look at at the effects of geopolitical uncertainty on the economy in historical perspective.
The Markets follow a recognizable pattern when confronted with a spike of geopolitical uncertainty. Short-term, the sell-off is modest and recovery is swift.
Medium-term, with a lack of de-escalation, potential GDP growth adjusts to the downside, fixed investment drops and labour conditions worsen.
We need to prepare for less obvious scenarios.
The war has led to terrible human tragedies and in addition to the conflict’s brutality, the impact on inflation and general economic uncertainty is considerable. In this context, DPAM’s CIOs explain how portfolio managers react to the crisis, their current positioning and the pathway going forward.
This week’s article touches on the pre-emptive tightening of monetary policy by second- and third-tier central banks.
Let’s look at the consequences of these actions and discuss how they might create a global tightening of financial conditions. Will this get G4 central banks off the hook?
Let’s reflect on the benefits to seek exposure to a broad set of sources of expected return. A challenging task that requires a proper understanding of the sources as well as on the methods to ponder about the future. It will be almost impossible to repeat returns over the next decade that were realized over the past 10 years. The starting points are extremely challenging as today’s prices across bonds and equity sectors are high.
“Whereas a ‘signal’ carries important information, ‘noise’ is an unwanted effect that pollutes the clarity of the signal.
Although not commonly used in the world of finance, both terms can give us a fresh perspective on the markets, and reveal how a skillful investor differentiates crucial signals from useless noise.
Central banks’ accommodative agendas are resolutely chugging along. However, we do notice some clear differences in attitude. Let’s examine these differences and shine a light on the potential for increased policy error risk… or investment opportunities.
A complicated cocktail of short- term reflationary conditions will take place as we make our way out of this pandemic. However, we will face an even more complex set of conditions that relate to long-term attenuation of imbalances. Bond investors have to look through the current inflation mania and focus on the long term, too.
2021 will be a challenging investment year for all financial market sectors as the frontloading over 2020 has been unprecedented. As we take an in-depth look at what fixed income investors can expect for the next 12 months, our main focus rests on our medium and longer-term assessments.
August did not stir financial markets as often had been the case in pre-COVID years. Instead, August confirmed the steady reflation visible across global financial markets since April. With 2/3 of the year behind us, we find comfort in the realized bond returns. However, return expectations across bond sectors have collapsed.
The European Union and the Eurozone surpassed a historic hurdle over the past week. The birth of a European safe bond is a reality. Investors should embrace this moment while coping with unseen challenges as global, quality, fixed income product yields are falling well below 1.00%. Credit investments carry and offer small risk premia.
As countries have started to relax confinement conditions, market participants are looking for recovery signs in consumption and business activity. One message: tail risks turn inwards, closing in towards the mean of expected outcomes within financial markets.
Peter De Coensel, CIO Fixed income, clarifies some misleading statements in global bond markets. He stresses selection of underlying bond strategies and the correct positioning across bond sectors as key factors in a low yield environment.
Interest rates on core government bonds across the European continent are at rock-bottom levels. The past month was characterized by a risk-off sentiment in bond markets, triggered by the Italian government formation and the market reaction to the impact on emerging markets of a rising dollar and specific situations in some EM countries (Turkey, Argentina).