United States
A weakening economy will apply downward pressure to Treasury yields, but the Trump term premium will keep long-dated yields higher than they would otherwise be. This makes Treasury curve steepeners the most attractive trade in US fixed income.
Utilities remain a long-term structural investment theme thanks to the tailwinds from GenAI, EV, and onshoring. However, there is little upside left over the tactical investment horizon as all the positives are priced in. We close our overweight and book profits.
The easing bias remains, but not all central banks are equal. This Central Bank Monitor update reveals who is ready to cut more and who is still pretending not to.
Our Portfolio Allocation Summary for May 2025.
It may take several months for the tariff shock and policy uncertainty to filter through the real economy, but survey-based data are already sending a warning. Equities have priced in a lot of good news, and investors are too sanguine about the risk of a US recession.
Today, we are introducing an additional ‘high-frequency Joshi rule’ which is updated weekly. The Joshi rules tell us that a US recession is not imminent. Until the Joshi rules are triggered, overweight non-US government bonds, and especially UK gilts, versus US T-bonds. And shift cyclical asset allocation from overweight to neutral-weight bonds. Plus: tactically long USD/GBP and tactically underweight global industrials (EXI).