Inflation Protected
In this report, we present our performance review of the BCA Research Global Fixed Income Strategy (GFIS) model bond portfolio for the Q1/2023, and the outlook and scenario analysis for the next six months. The portfolio slightly underperformed its benchmark during the quarter as global growth showed surprising resilience to begin the year. Looking ahead, the portfolio is positioned to capitalize on an expected slowing of global growth over the rest of the year through an overweight stance on government bonds versus spread product.
This week we present our Portfolio Allocation Summary for April 2023.
In this Strategy Outlook, we present the major investment themes and views we see playing out for the rest of 2023 and beyond.
It is a big mistake to think that rate cuts or lower bond yields will ease credit conditions. Quite the contrary. After an aggressive tightening of monetary policy, the first rate cuts always coincide with much tighter credit conditions. We discuss the implications for credit, government bonds and equities. Plus, we find a startling anomaly in equity sector performance.
Depending on market volatility during the next few trading days, the Fed will either lift rates by 25 bps next week or pause its tightening cycle. Either way, the Fed’s hiking cycle is close to its peak but rate cuts won’t be coming anytime soon.
Bank failures are another ‘canary in the coal mine’ warning that a US recession is imminent, yet stocks, bonds, and the oil price are still a long way from fully pricing it.
The combination of collapsing energy inflation and cooling wage inflation means that euro area core inflation will slump later this year. We discuss the consequences.
This week we present our Portfolio Allocation Summary for March 2023.
Since 1970, the track record of US housing recessions as the ‘canary in the coal mine’ for economic recessions is a perfect four out of four: 1974; 1980; 1990; and 2007. If this perfect track record continues, the current US housing recession presages an economic recession that starts in 2023. We discuss the investment implications.
This week’s report considers the risk that inflation will be stickier than we anticipate, and looks at what a fair value for the 10-year Treasury yield might be in a scenario where the Fed keeps the policy rate on hold for a prolonged period.