Inflation has risen to levels not seen in 40 years, leading to a repricing of financial markets this year, which has been particularly severe in the fixed income space. Central Banks have already started to hike rates and turn to the hawkish side to avoid de-anchoring inflation expectations. The era of low or even negative interest rates is over.
We strongly believe that this new market context provides a new paradigm for bonds, with more attractive valuations and a renewed outlook.
- Valuations: fixed income valuations are now as attractive as equities’ from a relative standpoint, as a result of higher inflation figures coupled with CB actions.
- Outlook: although we expect more volatility in the coming weeks, as investors process central bank actions and communications, and weigh up the trade-offs between the risk of higher inflation and slower growth, interest rates are not going back into negative territory.
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