Inflation Protected
In this Special Report, we introduce our UK Linkers Golden Rule – a framework to profitably trade and invest in UK inflation-linked bonds versus nominal UK gilts. The Rule is currently signaling that nominal Gilts should outperform UK linkers over the next year as UK inflation slows.
Could a second wave of global inflation be underway? The latest inflation prints in the US and UK showed upside surprises, while there is evidence of increased price pressures in global manufacturing. Combined with the improvements seen in economic sentiment measures and leading economic indicators in the US and Europe, and potential upside risks to oil prices, we see a strong case for owning more inflation protection in global bond portfolios. Inflation-linked bonds look attractive in this environment, especially in the US.
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.
Our US fixed income team’s key investment views for 2024.
Inflation won’t fall fast enough for the Fed to cut rates preemptively before recession arrives. The risk/rewards balance is unfavorable for risk assets. Stay overweight bonds versus equities.