Germany

Are negative yields on $10 trillion of global bonds a sure sign of a bubble? The answer is no... and yes.

A common perception is that the euro has been a failure for Italy. We challenge this perception and explain why it is so important for investors, whether it is wrong or right.

In August, the model outperformed the S&P 500 and global equities in both USD and local-currency terms. For September, the model increased its allocation to cash and trimmed its exposure to equities.

The euro area's NPL problem is unlikely to be solved quickly, constraining bank profitability and the capacity to lend. There are three important repercussions for investors.

Given that the seemingly unthinkable can actually happen, we reassess how financial markets price uncertainty, and whether the current pricing is correct.

We test three channels of contagion from the Brexit shock: political, banking system, and economic.

Special Report

Dear Client, After being ardent bond bulls for many years, it is time to shift gears. As I write these words, the U.S. 10-year Treasury yield has hit an all-time low of 1.37%, the 10-year bund yield is at -0.18%, and the 10-year Swiss yield is at -0.61%. While we do not expect yields to soar anytime soon, the long-term risk for yields is now more to the upside than the downside. This suggests that investors should sell bonds on any rallies. We are maintaining a neutral stance towards global equities for now, but will be looking to overweight stocks later this year if (as we expect) the post-Brexit shock running through policy circles leads to a further easing in fiscal and monetary policy. With this in mind, we are opening a new structural trade recommendation: Short an equally-weighted portfolio of Japanese, German, and Swiss 10-year bonds. We regard these three negative-yielding markets as among the most overpriced in the world. Details will follow later this week in our Q3 Strategy Outlook. Best regards, Peter Berezin, Managing Editor

For the month of June, the model performed in line with both global equities and the S&P 500. For the month of July, the model is increasing its risk exposure.

Government bond yields will remain at depressed levels as investors stay in safe haven assets given the lack of clarity on the next steps in the Brexit saga.

Special Report

If the U.K. ultimately exits the EU, it will be a major break in the 70 years of European integration. Multipolarity will be reinforced, increasing global geopolitical risk. We expect global risk assets to start taking cues from Europe, not the Fed and China. However, risks of N-Exit - that other EU member states follow suit - may be overstated.