MacroResearchBoard

Stay Short Bond Duration And Long Inflation-Protection Bonds – May 6, 2024

A just published report updated our asset allocation and investment recommendations. A broadening and strengthening in the global economic expansion will ensure that the uptrend in corporate profits persists. The downside of this outcome is that DM inflation will remain sticky, and above most central bank targets, especially in the U.S. Consequently, while the Fed still has a bias to lower its policy rate, the backdrop will prevent it from fulfilling market expectations of much lower policy rates in the coming year.

This mix warrants a neutral stance on equities, an underweight on bonds and overweight exposure to attractive-yielding cash within a multi-asset portfolio. Within fixed-income, we expect a further outperformance by corporate and EM bonds, with high-yield and EM local-currency debt our preferred picks. We are short duration relative to benchmarks, and overweight long-term inflation protection bonds relative to their conventional counterparts.