The ongoing slowdown in global trade will weaken global GDP growth further in 2020 – especially in advanced economies skewed towards the manufacturing sector – but a full-blown recession is unlikely, in our view. This situation will encourage policymakers to finally add fiscal stimulus to the policy mix, possibly extending the economic and credit cycles. Monetary policy is unlikely to become much more accommodative and market expectations will have to adjust, likely driving bond volatility higher with a possible bottoming out of core bond yields.
In this environment, fixed income investors should, firstly, build allocation to exploit opportunities wherever available and get the most out of Euro and a robust ‘core’ global aggregate bond markets. A flexible and well diversified approach is best suited to dealing with possible diverging scenarios that will become clearer in the coming months.
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