A sharp economic slowdown seems to be looming in both Europe and the US, which would make bond markets attractive again, especially in the US. Conversely, the Chinese economy is expected to reaccelerate. International monetary system set to become multipolar as geopolitical factors are likely to prevail.
Inflation’s return will impact the strategic allocation of all long-term investors, especially central banks and sovereign funds. The Federal Reserve is normalising monetary policy swiftly, which has caused a rapid rise in long-term interest rates in the US and, to a lesser extent, Europe. This has helped strengthen the dollar.
At the same time, a sharp economic slowdown (or even recession) seems to be on the cards in both Europe and, possibly, the US. This would give many investors the opportunity to reposition themselves in US Treasuries. At current levels, US bond yields are becoming more attractive compared to Chinese bond markets. When inflation slows, which we expect to happen in 2023, US bond yields will become even more attractive.
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