This year, we expect the global economic environment to feature sluggish growth and an extended period of sustained high inflation. For the credit market, it will be a tale of two halves:
Hawkish monetary policy and inflation risk will remain the primary focus of investors’ attention…
In late 2022, the ECB and the Fed took a hawkish turn in the face of more-persistent-than-expected inflation. Recent signs of moderation in headline inflation were not enough to reassure central bankers. Both central banks did not want the market to interpret the reduction in the size of rate hikes as a dovish pivot or as a lack of commitment to fighting inflation. Central bankers were not happy with the recent easing in financial conditions, as – if it persists – restrictive monetary policy will lose its effectiveness. In the first half of 2023, we expect the extreme level of bond volatility to decline, as investors should be more confident in the level of rates required to lower inflation sustainably.
You can now read the full whitepaper at the link below