Fixed Income
In this Special Report, we describe how inflation expectations are formed. We then demonstrate that steady state inflation expectations have un-anchored in the UK, are un-anchoring in Japan, and are at high risk of un-anchoring in the US. And we conclude with some implications for bond markets.
Inflation’s underlying trend was headed lower prior to the Iran war. This makes the recent back-up in bond yields look like an attractive buying opportunity.
Trump’s breaking point is encapsulated by the combined drawdown in stocks plus bonds reaching 12-15 percent. On this basis, we describe how to ‘trade Trump’. Plus, we highlight three positions that should do well independent of Trump’s actions, including a new trade.
US employment data show some tentative signs of job growth acceleration and stable utilization. We see breakeven monthly job growth as closer to +30k per month than zero.
The Turkish financial markets will struggle in the very near term, but beyond that, the cyclical disinflation process will resume. Fixed-income investors should put Turkish 2-year local currencybonds on a ‘buy’ watch list.
The global risk-off phase will persist. It is too early to buy local-currency bonds in Mainstream EM, but it is not too late to sell EM sovereign and corporate credit (USD bonds).
Our Portfolio Allocation Summary for April 2026.
While the Middle East conflict’s inflationary impact is likely to persist, US recession risk is contained whereas non-US recession risk is more elevated. We discuss what this means for investment strategy. Plus, a new tactical trade is to underweight Utilities.
We are pleased to introduce our new Quarterly Investment Outlook, a joint publication bringing together the European Investment Strategy (EIS), Global Fixed Income Strategy (GFIS), and Foreign Exchange Strategy teams.
The main takeaway of the current edition is that investors should not add risk. Markets are still focused on inflation, but the binding constraint is growth: if the energy shock persists into mid-April, a rapid shift toward recession pricing will follow.
The current macro environment is a toxic brew of many of the same vulnerabilities that haunted the global economy in the lead-up to past recessions: Rising oil prices, an unsustainable tech capex boom, elevated equity valuations, excessively high homes prices, and brewing stresses in private credit and other parts of the financial system. While global equities look increasingly oversold in the very near term, they will still finish the year below current levels.