Deputy Head of Fixed Income
As the US Fed takes its foot off the rates pedal, the timing of the end of the US cycle remains uncertain. In this environment, preparing for opportunities later in 2019 is the objective.
While Donald Trump complains that the Fed isn’t helping his economy, careful tightening now, including some equity market bumps, may prevent more damage later.
With the prospect of inflation growing in the US and the Fed raising rates quicker than is expected, we believe the US is now in the late stage of its cycle. Although recession is still some way off, this is troubling for both bonds and riskier assets.
The increase in instability — originating from the US Fed’s rates increase and volatility in Turkey and Argentina — hasn’t rattled broader risk sentiment, but as we disagree with the market’s position on the Fed’s rates outlook, we’re set up for a different future than most.
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Stuart Dear, Deputy Head of Fixed Income at Schroders, believes that value in bonds has improved in both absolute and relative terms.
Bond yields are rising in response to better growth, higher inflation and withdrawal of central bank support. Contrary to common perception, this is a time when the defensive qualities of fixed income become more valuable.