2022 will be be the year of bonds
Senior Fixed Income Strategist, Saxo Bank Group
Summary: Looking ahead to the new year, we have asked the Saxo Strats what they will be looking at in the new year. In this article, our Fixed income Strategist, Althea Spinozzi, takes the temperature on a bond market that’s been cold for years.
2022 will be all about bonds. We will see interest rates rising, provoking an increase in market volatility. While dropping yields have supported the economy and assets valuations for years, rising yields will threaten weaker companies and growth.
Despite the turmoil in markets, central banks will not have a choice other than to tighten the economy to slow down price pressures. Aggressive monetary policies will put upward pressure on the front part of the yield curve. In contrast, long-term yields will remain compressed as the economy decelerates. Therefore, the US yield curve will bear-flatten throughout the year. Yet, it’s real yields investors should pay attention to. As the Federal Reserve adjusts its tightening path, inflation expectations will adjust lower while nominal yields will move higher, accelerating the rise in real yields.
The only way to find shelter from high inflation and rising interest rates is to look at yield above the expected inflation rate while minimizing duration exposure. Only junk bond space can offer a solution to the problem. However, at this moment, it is critical to cherry-pick credits under a buy-to-hold perspective not to incur a capital loss. Don’t worry, though! Although higher rates will be distressing for risky assets, more exciting opportunities will emerge.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
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Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.
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