en en de fr de en de de de de fr de en de de en en en en en de en fr en en nl fr de es en zh en it ja ru es en nl ja en en en sv hbs_lat de en en en en en en it en de es en en nl en en en en en en en en en en en en en en en en en en en en en en en de de de en en en de de en en de en de en de en en nl en de de it de de en de de de de de en de en de de de de en en de en de de de de en fr de de de en it de de de lb de de de de de de de
We’re facing the risk of central bank policy error. History shows us that, at times when inflation was as high as it is now, the Fed has never been able to temper inflation without causing a recession.
Head of Global Macro team and Portfolio Manager
Portfolio Manager Global Macro Fixed Income
The Ukraine war leaves the inflation path higher and more persistent…
...forcing monetary response that may end in curve inversion and recession
Credit spreads have cheapened, but swap spreads are cheaper
Last quarter, in ‘Pricing sigma’, we wrote that multiple sigma events are back in fixed income. The first few months of 2022 have accelerated this, with US 2-year yields up over 140 bps so far this year, EUR swap spreads approaching Eurozone crisis levels and the China offshore high yield market seeing an OAS of more than 3000 bps. After nearly a year and a half of an expensive and generally dull landscape in fixed income, with opportunities mainly on the short side, value is beginning to return.
At our last Global Macro Quarterly Outlook, we thought market participants might be overlooking three themes in 2022: the breadth of deterioration in China real estate credit, Covid-19 trends and geopolitics. We noted “a broad range of flashpoints along the EU’s eastern front (…) from Polish sovereignty matters, to Belarus geopolitics, Russia-Ukraine tensions…”. Into Q2 2022, all three concerns remain, although the focus of Covid trends has shifted to the People’s Republic of China, and the world’s attention is now fully centered on geopolitics.
Looking into Q2, we should acknowledge some uncertainties. The oil price could trade in the USD 80s or above USD 130: we have seen both in the past 30 days alone. Furthermore, the scale and coordination of the EU fiscal response in energy and defense is unclear (although the fiscal architecture is also potentially at stake; as 2020 showed, Federalist Eurozone politicians tend to make structurally cohesive steps during crises).
The full effects of Russia’s unplugging from the global financial system are arguably still not yet known. Deciphering the next military calculations that will take place from inside the Kremlin are best left to academics, but decisions taken here may cast a long economic shadow.
Before the Russian invasion of Ukraine, inflation was already rising, and markets were pricing in more hawkish central bank profiles – even for the ECB. It’s worth remembering the US 2-year yield was at 0.73% on 31 December 2021; it has just risen to over 2.15%. Since military action began, the subsequent rise in oil to well over USD 100 and the further sharp flattening of the US yield curve have led economists globally to raise their inflation targets, to extend the forecast period of higher inflation and to cut growth.
The Fed, for example, have slashed their 2022 growth forecasts from 4% to 2.8%. Their inflation forecast is the mirror image, having been revised up sharply from 2.6% to 4.3%. Coming into 2022, expectations were for substantially above-trend growth. Indeed, 2.8% would compare well with the post-2008 growth trend, and a modestly above-trend outcome could still be delivered amid reopening and order backlogs – if there were to be an early conclusion to the Russia-Ukraine war. But we note financial markets often tend to underestimate the length of shocks of this nature, and there are evident and growing risks. The debate is rapidly shifting to what probability to place on a recession over the medium term. We note a number of senior economists already calling for recession within the next year or two.
The growth-inflation mix that central bankers now face is the opposite of the high-growth, low-inflation paradigm of the 1990s – when Russia and Eastern Europe were welcomed back into the west’s financial and economic networks. Now, with inflation soaring above central bank targets, the question for policymakers is who will tighten by how much and when.
In chess, there is a term ‘zugzwang’, which describes a situation in which the obligation to make a move may lead to a serious, often decisive, disadvantage. For central banks, if they do not tighten, expectations for higher inflation could become embedded, leading to wild misses of mandate targets and undesirable spirals. Should they overtighten, however, the risk of recession looms. Don’t forget that the Fed’s delayed decision to taper QE in 2021, will this year bring a triple tightening of tapering, hiking and balance sheet contraction. All this was due in any case, before the recent commodity price spike.
…and yield curve inversion
For bond markets, this has meant a continuation of the yield curve flattening trend we wrote about through much of the past nine months. And sharply so. The US 2s10s spread (now below 20 bps) stands at less than a quarter of what it was on 1 January 2022 (above 80 bps). To understand what might transpire from here, we recommend starting in Prague. The Czech local yield curve is usually not top of most global bond investors’ monitoring list. But this cycle, it was the first to invert. Central and Eastern Europe (CEE) central banks have hiked rates aggressively in response to the same inflation pressures we are all experiencing. The CZGB yield curve has tipped over as the market’s estimation of the neutral (or r*) level of rates has been eclipsed by the Czech National Bank’s rate hike activity and the prospect of further near-term hikes.
Why should we care? Because, since then, the Czech trend has spread to bond markets as diverse as Poland, South Korea swaps and UK Sonia. The US yield curve 12 months forward is now almost completely flat with almost all tenors trading close to 2.60%. In fact, with the US 1yr1yr forward the highest point on the curve, forward curve inversion has already begun.
Flat or inverted yield curves do not always mean recessions (see 1994 and 1998, for instance, when we had emerging market (EM) crises, but developed market (DM) economies escaped recession). There is also often a time lag, such that recessions may occur some time after curve inversions, particularly if the actual real borrowing costs faced by private sector agents have yet to rise materially.
It is also mathematically likely that, in markets with low r*s, recessions can occur without yield curves inverting at all: Japan has had seven recessions since its curve last inverted, and Germany has had three. So it is neither a sufficient prerequisite, nor the automatic cause of an outcome. Yet the historic track record (and the reasons behind it) of yield curves, should not be dismissed.
Critically, from current levels of inflation, the Fed has never tightened just enough to make inflation come back down to target without causing a recession. Commodity strategists already talk of ‘demand destruction’ as the central scenario for wheat and energy prices to come back down in due course. For the likes of Fed Chair Powell and the BoE’s Governor Andrew Bailey, who are facing an unwelcome policy version of zugzwang, the path shown by CEE curves and the historically unlikely challenge of pulling off the feat of dampening inflation without causing recession, it might just be Czech mate.
Leave your details and download it here.
Dieser Bericht ist für Nutzer aus Ländern, in denen das Anbieten ausländischer Finanzdienstleistungen nicht gestattet ist, wie z. B. für US-Personen, nicht verfügbar.
Ihre Daten werden nicht an Dritte weitergeben. Diese Informationen richten sich ausschließlich an professionelle Anleger. Alle Anfragen werden überprüft.
Weitere Artikel zu diesem Thema
5-Jahres-Ausblick „Expected Returns“: Epoche der Verunsicherung
5-Jahres-Ausblick „Expected Returns“: Epoche der Verunsicherung
Fixed income outlook: Twin peaks
Finnland erneut Weltspitze in punkto Nachhaltigkeit
China: Vier Gründe, warum das Schlimmste überstanden ist
Central bank watcher: Work in progress
Fixed income outlook: Twin peaks
Auf Basis von Fundamentaldaten gemanagte Rentenmarktstrategie, die einem konträren Stil folgt.
Global Total Return Bond Fund
All Strategy Euro Bonds
Besuchen Sie uns in den sozialen Medien
Sitemap Fonds - Sitemap Strategien
Die auf diesen Seiten enthaltenen Informationen dienen Marketingzwecken und sind ausschließlich für (i) qualifizierte Anleger gemäß dem Schweizer Bundesgesetz über die kollektiven Kapitalanlagen vom 23. Juni 2006 („KAG“), (ii) Professionelle Kunden gemäß Anhang II der Richtlinie über Märkte für Finanzinstrumente (2014/65/EU; „MiFID II“) mit Sitz in der Europäischen Union oder im Europäischen Wirtschaftsraum mit einer entsprechenden Lizenz zur Erbringung von Vertriebs- / Angebotshandlungen im Zusammenhang mit Finanzinstrumenten oder für (iii) solche, die hiermit aus eigener Initiative entsprechende Informationen zu spezifischen Finanzinstrumenten erfragen und als professionelle Kunden qualifizieren.
Die Fonds haben ihren Sitz in Luxemburg oder den Niederlanden. Die ACOLIN Fund Services AG, Postanschrift: Affolternstrasse 56, 8050 Zürich, agiert als Schweizer Vertreter der Fonds. UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich, Postanschrift: Europastrasse 2, P.O. Box, CH-8152 Opfikon, fungiert als Schweizer Zahlstelle. Der Prospekt, die Key Investor Information Documents (KIIDs), die Satzung, die Jahres- und Halbjahresberichte der Fonds sind auf einfache Anfrage hin und kostenlos im beim Schweizer Vertreter ACOLIN Fund Services AG erhältlich. Die Prospekte sind auch über die Website www.robeco.ch verfügbar.
Einige Fonds, über die Informationen auf dieser Website angezeigt werden, fallen möglicherweise nicht in den Geltungsbereich des KAG und müssen daher nicht über eine entsprechende Genehmigung durch die Eidgenössische Finanzmarktaufsicht FINMA verfügen. Einige Fonds sind in Ihrem Wohnsitz- / Sitzstaat möglicherweise nicht verfügbar. Bitte überprüfen Sie den Registrierungsstatus in Ihrem jeweiligen Wohnsitz- / Sitzstaat. Um die in Ihrem Land registrierten Produkte anzuzeigen, gehen Sie bitte zur jeweiligen Länderauswahl, die auf dieser Website zu finden ist, und wählen Sie Ihr Wohnsitz- / Sitzstaat aus.
Weder Informationen noch Meinungen auf dieser Website stellen eine Aufforderung, ein Angebot oder eine Empfehlung zum Kauf, Verkauf oder einer anderweitigen Verfügung eines Finanzinstrumentes dar. Die Informationen auf dieser Webseite stellen keine Anlageberatung oder anderweitige Dienstleistung der Robeco Switzerland Ltd dar. Eine Investition in ein Produkt von Robeco Switzerland Ltd sollte erst erfolgen, nachdem die entsprechenden rechtlichen Dokumente wie Verwaltungsvorschriften, Prospekt, Jahres- und Halbjahresberichte konsultiert wurden.
Durch Klicken auf "Ich stimme zu" bestätigen Sie, dass Sie resp. die von Ihnen vertretene juristische Person eine der oben genannten Kategorien von Adressaten fallen und dass Sie die Nutzungsbedingungen für diese Website gelesen, verstanden und akzeptiert haben.