Bond costs have risen sharply over the previous month or so, pushed primarily by central banks signalling that rates of interest have peaked, and whereas that view could also be barely optimistic, “it shouldn’t put investors off fixed income”, says Chris Iggo, chief funding officer for core investments at Axa Investment Managers.
He says that regardless of the markets’ elevated certainty across the path of financial coverage: “Cool-headed analysis suggests the cat-and-mouse game between bond investors and central banks will continue. Despite the lower-than-expected outcomes for inflation in October, inflation remains higher than desired.
“In addition, growth data is not yet weak enough to really squeeze inflation back to central bank target levels. In fact, despite the rally in long-term bonds, rate expectations have only fallen modestly. The end-2024 expectation for the Fed Funds Rate, derived from the Fed Funds futures market, is still at 4.35 per cent compared with 4.8 per cent in mid-October,” Iggo continues.
“Similar market pricing for the [European Central Bank] and [the Bank of England] shows an unchanged picture for the former and slightly higher expectation of more easing from the latter. Rate cuts: yes, but not early in the year and only partially reversing the hikes seen in the past two years.”
However, Iggo says elevated publicity to bonds stays prudent within the current local weather as a consequence of the upper yields on provide similtaneously demand from consumers stays strong.
He provides that this provide and demand dynamic is especially optimistic within the company bond universe.
