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History suggests central bank policy determines how bonds behave in recessions, even for high-debt countries. The Fed should be able to cut into a slowdown, making Treasurys an effective equity hedge… for USD-based investors. Foreign investors will see currency depreciation erase their gains.
US inflation came in hot for the second consecutive month in September, though probably not hot enough for the Fed to move its next rate hike up to the October meeting.
Middle Eastern crude exports are back at pre-war levels, yet Brent remains above $100/bbl. We explain why more barrels haven’t meant lower prices, and why policymakers have no clean fix. Even if Putin follows through on his reported agreement to release Russian diesel supplies into global markets, it is unlikely to meaningfully ease the fuel's supply disruption over the near term.
We review our Model Bond Portfolio performance for Q3 and look ahead as energy prices continue to drive fixed income markets. Balanced labor markets point to a mild tightening cycle, creating opportunities in government bonds and credit, while inflation-linked bonds continue offering protection against persistent energy risks.
The global bond selloff is not over, but opportunities are emerging. US Treasuries and French OATs remain vulnerable to further selling, while other European government bonds look increasingly attractive. Investors should favor German Bunds and peripheral bonds, particularly on a currency-hedged basis.
Our G10 FX cyclical scorecard still favors high-carry currencies over low yielders, suggesting patience should continue to pay. We break down the factors driving each currency and highlight the most appealing relative-value opportunities.
Forced selling may be approaching a pause, but France’s fiscal and political adjustment has barely begun. Maintain an underweight in OATs and use relief rallies to reduce exposure. Contained contagion is reassuring for Europe; it is not a buy signal for France.
This morning’s jobs report serves to underscore that the labor market is not a source of inflationary pressure and therefore of second-order importance when it comes to the Fed’s near-term decision making.
Politics, wars, a global tightening cycle, doubts over AI capex: the wall of worry keeps rising. But the spark that would topple risk assets is missing. Our Q4 FICC outlook explains why to stay long risk, and where the danger lies.