Keep an eye on bonds, in a context in which inflation will remain one of the main concerns also during 2023.
So Andrew Lake, Head of Global Fixed Income di Mirabaud AMreferring to both US and European inflation.
“We expect that, following the weakening of the economic environment and the rate hikes implemented so far, inflation will begin to fall naturally. Otherwise, you risk stagflation. The risk of stagflation in Europe is slightly higher than in the US, as the economy is weaker and the ecb has less leeway to raise interest rates, despite inflation more or less at the same level as that in the United States”.
Bonds: the commentary by Mirabaud AM
In the last 12 months, the economic context has undergone a huge change and even the most confident investor, points out the head of global fixed income division of Mirabaud AM, must take into account the daily news flow and adjust accordingly.
“One thing we’ve learned this year is that an active coverage policy can be very beneficial. When you are in a context of real volatility and real repricingthe ability to actively manage risk, given the illiquidity of the underlying cash market, has proven to be extremely important“.
Consequentially, “in a still very uncertain investment landscape, we believe that global unconstrained strategies not tied to a benchmark offer the best way to capture upside potential amid the turmoil (while managing the downside with active hedging).”
Yet, “unconstrained strategies offer investors a geographical reach and use a whole range of tools to access opportunities in the fixed income universe and capitalize on mispriced assets”.
Looking forward to 2023, Andrew Lake’s predictions are as follows:
“The focus will likely remain on the investment grade corporate bonds and we expect this sub-asset class to perform well in the first half of 2023while the market will adjust to the slowdown in inflation and growth. Once the market has priced in a more challenging economic environment, we expect opportunities to emerge in the riskier part of the credit universe, especially in high yield corporate bonds”.