2024 | Quarterly Outlook | Fixed Income

Markets appear to be looking through rose-tinted glasses as a perfect economic landing is now fully priced in. In addition, concerns are mounting that the dis-inflation momentum is fading. This has resulted in significant repricing of front-end rates. Nonetheless, I expect that inflation will resume its gradual downward trend to allow the ECB and Fed to cut rates this summer. Stock and credit markets are priced for perfection, but I do not fully sympathise with current valuations, as weaknesses in many economies remain. Indeed, even though it’s firmly risk-on, downside risk are not fully gone. Adding to curve steepeners and a preference to highly rated SSAs and covered bonds over investment grade and high yield credit may be prudent.

Quarterly Outlook Summary | Asset Class Preferences

Macroeconomic & Policy Outlook

• Risk markets anticipate either ‘no landing’ or a clear growth pick-up, and no longer price recession risk.

• Downside growth risks have eased, but caution against too much euphoria...

• ...even as cooling labor markets and underlying inflation allow DM central banks to start cutting rates in mid-2024

Rates strategy

• The bond outlook remains supportive due to the expected turn in official rates

• Fundamentals and valuations favour euro rates

• 5-year point on the curve looks attractive versus long end

Fixed income asset allocation

• Spreads are entering cycle tights

• Caution to underweights – technicals supportive Up-in-quality is a cheap alternative

• Credit markets: a cycle of haves and have-nots

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