Ultra dovish Central Banks put fixed income investing back to the core
A slowdown in global growth, with subdued inflation and dovish central banks (CB) committed to avoiding further economic deceleration, is a trend that, in our view, should remain favourable for bond investors. On one side, this should limit the upside in core bond yields and, on the other, support the credit market, although we are aware that the spread compression in this first part of the year has been very strong and that an increasingly selective approach will be crucial to exploiting pockets of value.
Other dominant factors within the fixed income environment are the increased role of politics, the still present short-term downside risks regarding the economy, the high level of debt globally, and, moving towards the long term, rising acknowledgment of climate and societal-related risks.
Against this backdrop, rethinking fixed income investments as a core part of investors’ portfolios is crucial both to deliver attractive risk/adjusted returns and to seek protection and effective diversification in phases of market turmoil.