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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