FICC
| Bonds
Bond market analysis on where to position across government bonds, credit, and inflation-linked debt.
US Treasury yields have fallen below our fair value estimate as investors rotated out of AI equities and into fixed income. We lay out why near-term inflation risks argue for a rebound, and the tactical trades we initiate to position for it.
The Fed will hike rates at a pace of 25 bps per quarter until either falling inflation or tighter financial conditions cause it to stop.
EM local bonds face near-term turbulence from rising inflation, global risk aversion, and currency weakness. Use the sell-off to build exposure: medium- and longer-term fundamentals remain favorable.
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.
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.
