Gov Sovereigns/Treasurys
We assess where emerging markets debt is on a strategic and cyclical basis. We find it has benefited from local central banks boosting their inflation-fighting credentials and governments improving financial stability. As a result, EM debt is behaving less like a risk-on asset, changing the role it plays in a global portfolio. We also expand our asset allocation playbook by assessing how the asset class behaves across the business cycle. While EM debt is more than a risk-on play, we suggest investors stay cautious on a cyclical horizon.
We update the indicators in our duration checklist following this morning’s employment report.
In this Strategy Insight, we take a comparative look at two of the largest spread product sectors in Europe – Italian government bonds and investment grade corporates. We make the case for favoring Italy over investment grade in the event of a downturn in European economic sentiment.
Despite the economy being on the verge of a recession, the South African Reserve Bank will not ease policy meaningfully. Doing so will accentuate the currency depreciation, which, in turn, will push up bond yields – an outcome the central bank would like to prevent.
MacroQuant upgraded equities to overweight in February on a tactical short-term (1-to-3 month) horizon, but it continues to see downside risks to stocks on a medium-term (12-month) horizon. Consistent with the model’s relatively somber medium-term growth outlook, it sees more downside for bond yields on a 12-month horizon than on a 1-to-3 month horizon.
The first in a series of Strategy Insights where we present a checklist for extending duration in each major government bond market. This first entry focuses on the US.
We rank the US spread sectors in terms of risk versus reward.
