What is more important for credit spreads in the current environment: the fundamentals or central bank actions? Our research suggests that since 2010 the answer has been central banks and, in particular, the US Federal Reserve.
For the next 12 months, we are quite positive on performance prospect for global credit, singling out five investment themes.
Nikko Asset Management's Global Investment Committee met on March 29th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.
We expect June and December Fed hikes, but only mild further easing ahead for the BOJ and ECB. Meanwhile, we expect oil prices to creep higher through 2016 despite the stronger USD due to relatively firm economic developments in China and the G-3.
We expect that global equity and bond investing will be positive for Yen based investors due to Yen weakness, but for USD based investors, we are taking only a neutral stance on global equities due to a cautious forecast for US equities, whereas we are positive on Asia-Pac ex Japan, Japan and Europe. Meanwhile, we are moderately negative on bonds in each region when measured in USD terms, so we underweight them.
While a recession in the US is not our base scenario, the impact of such an event on credit exposure is worthy of consideration. In our historical analysis we've found that the driver of past recessions can provide important insight into which credit maturities are most attractive.
US monetary policy grows less independent as 2016 unfolds and risks to global growth abound in a rebalancing China, a deflationary struggle in Europe and whispers of a Brexit.
5-year and 10-year US Treasuries (USTs) yields ended the month lower, at 1.21% and 1.74% respectively. Cautious sentiment around falling oil prices and the prospect of a delay in US Federal Reserve interest rate increases supported US Treasuries (USTs) over the month.
Our Global Credit staff in London detail their rationale behind concentrating on service sector exposure globally.
In 2015, the US Federal Reserve began the process of interest rate normalisation. Short-term bonds underperformed long duration bonds, on expectations of the ongoing US economic recovery remaining weak, and US inflation being anchored at current low levels.
As we have seen over the past year in the equity market, the more Beijing wants to exert control, the more it slips away. Is pragmatism going to trump ideology in Beijing? In the current environment, the PBOC letting the RMB free float might not be so unbelievable after all.
2-year and 10-year US Treasuries (USTs) yields ended the month lower, at 0.78% and 1.92%. Concerns that China could be embarking on a devaluation path curbed investors' risk appetite and supported demand safe-haven assets.
In our view, the USD will soften when the Fed comes to accept the reality of slow-to-no growth globally and becomes more dovish in its language and approach.
Unfortunately for the soundness of the sleep among BOJ-watchers, Mr. Kuroda believes that surprising the market is the best way to achieve his intended result.
Our London and US analysts review oil prices from the supply and demand angle and they note that global demand growth remains high while global supply is narrowing, indicating that oilfs price swoon could be over.
Our Singapore fixed income team expounds on the outlook for this clearly globally important factor.
2015 has been a tumultuous year with a plethora of risk events spurring significant volatility across most asset classes.
2-year and 10-year US Treasuries (USTs) yields ended 2015 higher at 1.05% and 2.27%. These come after the US central bank raised ist interest rates and pledged a gradual pace of increases.
John Vail reflects on the Fed decision and the path forward. The Fed was even more dovish than apparent in the headlines.
Nikko Asset Management's Global Investment Committee met on December 8th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.