Bonds in the Face of Inflation: the Beautiful and the Damned
In the latest edition of Bond Bites, Jonathan Gregory, Head of Fixed Income UK, explores the potential impact of higher levels of inflation and interest rates on fixed income markets.Â
Highlights
Highlights
- The safe haven status usually given to government bonds in moments of crisis was not much evident in the opening days of the war in the Ukraine.
- The US Federal Reserve has made it clear that bringing inflation under control is their priority.
- Engineering a ‘soft-landing’ (i.e. low unemployment and inflation back at target) with high levels of inflation and a buoyant economy is likely to be tricky and require higher rates than are expected today.
- There are also deflationary forces at work. This might mean that the Fed is, in fact, starting to tighten policy just as the economy is running into headwinds. Will this risk a deflationary crash later?
- On balance we think that the risk to the bond market is tilted towards higher yields, and have therefore remained underweight bonds.
Related insights
- Navigating fixed income in 2025: Key trends and insights
- Asia credit market on the recovery path
- Will US bond markets outperform Europe and China in 2025?
- 2025 Fixed Income Default Study
- Emerging market debt reflections following IMF-World Bank meetings
- Fixed income outlook – 3Q 2024
- Portfolio diversification with Sukuk
- The Fed did it, and may do it again soon
- Fixed Income Outlook – 2H 2024
- Yielding answers: Are cash investors being complacent?
Contact us
Make an inquiry
Fill in an inquiry form and leave your details – we’ll be back in touch.
Introducing our leadership team
Meet the members of the team responsible for ÃÛ¶¹ÊÓƵ Asset Management’s strategic direction.
