Euro Area

In this Special Report, we introduce two strategies that use our Central Bank Monitors for global fixed income country allocations and currency trades. We find that using the Monitors in country selection helps improve the performance of a developed markets government bond portfolio. The CBMs can also help substantially minimize the drawdowns on a standard FX carry strategy.

Europe’s weak patch is not about the ECB’s policy tightening, at least not yet. 2024 is another story, and the ECB’s policy will prompt a Eurozone’s recession around the summer.

In this report, we present the quarterly review of the Global Fixed Income Strategy Model Bond Portfolio. The portfolio remains positioned for slower global growth momentum over the next 6-12 months, favoring government bonds over corporate debt. The portfolio also favors government bonds in countries flirting with recession where policy rates are too high (core Europe & the UK).

Yields remain the force dominating the evolution of markets. A peak in yields would help European assets rebound, but the war in the Middle East could push higher energy prices, with negative consequences for Europe.