Senior Fixed Income Strategist
Summary: As real rates continue to soar on both sides of the Atlantic, financial conditions will tighten further, putting more pressure on risky assets. Yet, record-high bond yields might present an opportunity for investors looking to secure a stable cash flow and create a buffer against a stock market downturn. This piece looks at bond opportunities in the short and long part of the yield curve in the US, Europe, and the UK.
Historically, bonds have played a crucial role in diversifying portfolios’ risk and reducing overall volatility.
As we discussed in Saxo’s recent quarterly outlook, central banks might need to keep a hawkish bias as inflation remains elevated despite the economy decelerating sensibly. Therefore, long-term rates might continue to soar while the front part of the yield curve remains anchored.
Within this environment, we favor high-quality short-term bonds. Yet, as we approach a peak in yields, income seekers are presented with the opportunity to lock in decades-high yields.
Below, we want to provide a comprehensive list of short and long-term high-grade for inspiration purposes.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
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