Author Archive

Core sovereign yields are heading North

In our start-of-the-year scenario for 2017, we thought that inflation, monetary and fiscal policy would push yields on core sovereign bonds higher, except on Japanese ones. In the event, political gridlock in Washington forced us to abandon our expectations for a significant fiscal stimulus in the US that would boost economic growth, while weakness in […]

Risks for high-yield bonds are rising

US and euro high yield have performed strongly between Donald Trump’s election as US president and the end of June. However, our analysis of fair value suggests there is potential for a widening of spreads and a rise in default rates ahead. Our multi-factor model of high-yield corporate spreads enables us to forecast US and euro […]

US Treasuries cast doubt on Trumponomics

At the beginning of 2017, in our outlook for sovereign bonds, we forecasted that the 10-year US Treasury yield would rise to 2.8-3% by year’s end. However, yields have been stuck in a range of 2.2-2.6%, so a review looks warranted. Indeed, the risk has increased of an alternative to the core scenario, but we […]

Fixed Income: looking for a place to hide

Last year credit posted stellar total returns, and the beginning of 2017 has also started well. Investors need to watch three main macroeconomic risk factors in 2017: Inflation, which will normalize; Monetary policy, which will continue to diverge; and Fiscal policy, which will remain accommodative in both the US and euro area. However, we expect […]

Sovereign yields to rise as reflation takes hold

Our central scenario for developed markets sovereign bond yields in 2017 is based on our in-house risk-factor analysis, which is leading us to conclude that there is a 65% probability that 2017 will be a year of reflation (see table). Underpinning the economic environment will be the following three macroeconomic factors: Inflation, which should accelerate […]

Bond yields shift higher

We have revised our year-end target for the 10-year US Treasury yield from 1.7% to 2% and for the 10-year German Bund yield from 0.08% to 0.3%. Since the end of September, markets’ inflation expectations have rebounded, with euro and USD 5Y5Y inflation swap rates and 10-year breakeven yields rising. This rise is due to […]

Bund yield forecast reduced in response to heightened volatility

The financial markets’ reaction to the UK’s Brexit referendum, together with the change in our economic scenarios as a result of UK voters’ decision to leave the European Union, are leading us to change our forecast for euro area bonds, particularly our forecasts for the German 10-year Bund and for yield spreads over Bunds for […]

U.S. Treasuries tugged between fear and hope

Read full report here As we arrive close to the end of the first half of 2016, it is time to revisit our 2016 scenario for US Treasuries. Since we formulated our scenario in October 2015, giving a target 10-year US Treasury yield of 2.7% for the end of 2016, many things have changed. First, […]

Reasons behind the stress in corporate High-Yield

High-Yield (HY) corporate bonds have continued to suffer since the start of the year, posting a negative total return of 4.6% for the US index and 3.6% for the equivalent index in euro. It comes as no surprise that the worst-performing US sector was energy, down 18.3%, and the best performer was super retail, with […]