Yield Curve

MacroQuant upgraded equities to overweight in February on a tactical short-term (1-to-3 month) horizon, but it continues to see downside risks to stocks on a medium-term (12-month) horizon. Consistent with the model’s relatively somber medium-term growth outlook, it sees more downside for bond yields on a 12-month horizon than on a 1-to-3 month horizon.

The first in a series of Strategy Insights where we present a checklist for extending duration in each major government bond market. This first entry focuses on the US.

We rank the US spread sectors in terms of risk versus reward.

Comments on yesterday’s CPI report and yield moves.

Easier financial conditions, rising home prices, rebounding consumer sentiment, and a stabilization in manufacturing activity all augur well for near-term US growth prospects. An unsustainably low savings rate is a key risk to the US economic outlook. Our revised forecast is centered on a recession starting in late 2024 or early 2025.

Our Portfolio Allocation Summary for February 2024.

In this Insight, we share our thoughts on yesterday’s FOMC meeting and the Fed’s likely next moves, with implications for US bond strategy.

When will the US also buckle under high rates? We expect a US recession to begin around mid-year. Stay defensive.

We present the performance review of the Global Fixed Income Strategy Model Bond Portfolio for 2023. We also discuss the outlook for 2024 performance based on our Key Views for the year. The portfolio is positioned to benefit from a year where the global backdrop will be one of weak growth and further declines in inflation, leading central bank to begin cutting interest rates.