Fixed Income

For now, measures of labor market utilization (like the unemployment rate) are only gradually weakening. But we know from history that these trends have a habit of quickly accelerating in advance of recession. 

Unlike in past episodes, US dollar weakness will be deflationary, not reflationary, for the rest of the world. In this context, EM local currency bonds offer a superior risk-reward profile. Stay long domestic bonds in select EM countries.

Our Portfolio Allocation Summary for June 2025.

Global currency markets have entered a new era. This implies that the framework for analyzing exchange rates must also change. We introduce a new framework for analyzing EM currencies and classify them into resilient and vulnerable categories. Finally, we are adding more EM domestic bonds to our portfolio and making many changes to our currency trades.

This Insight looks at the implications of the RBNZ’s rate cut on New Zealand assets.