Japan

High interest rates will eventually cause growth to slow. Signs of stress are already starting to show. Stay cautiously positioned.

In this Special Report, we introduce two strategies that use our Central Bank Monitors for global fixed income country allocations and currency trades. We find that using the Monitors in country selection helps improve the performance of a developed markets government bond portfolio. The CBMs can also help substantially minimize the drawdowns on a standard FX carry strategy.

There is a high probability that the global economy will tip into recession in the second half of 2024. A long yen position is an excellent hedge against that risk.

In this report, we present the quarterly review of the Global Fixed Income Strategy Model Bond Portfolio. The portfolio remains positioned for slower global growth momentum over the next 6-12 months, favoring government bonds over corporate debt. The portfolio also favors government bonds in countries flirting with recession where policy rates are too high (core Europe & the UK).

Aggressive monetary tightening has always led to recession, although the timing is uncertain. The effects of high interest rates are starting to be felt. Investors should stay risk off and buy government bonds as a safe haven investment with carry.