2019 Fixed Income Survey: Is A Change In Market Dynamics Afoot?

Throughout the year we ask leading bond and currency managers to consider valuations, expectations, and outlooks for the coming months. Today, we've asked: Is the Fed providing markets with false comfort? 

Over 2018, it was clear that our fixed income manager survey respondents were anticipating ongoing market volatility. During that period, we continued to highlight the incongruous views of bearish interest rate managers versus credit managers, who have been more bullish. We also saw broad optimism for emerging markets foreign currencies overall, with particular favor for the Mexican peso. 

In 2019 however, there has been a clear shift in sentiment and the results from our survey suggest that our respondents have a very different outlook for the next 12 months. As we will see, the abrupt change in direction by the U.S. Federal Reserve (the Fed) in January has had an effect on many of our managers' views versus last year.   

Today, we put the spotlight on:

  • Market status quo: December versus now
  • The 'Fed put'
  • The outlook for emerging markets 

In January, we received answers from 60 investment managers from across the world. A closer look at the findings from all eight areas will be available soon (global interest rates, global investment grade, and leveraged credit, emerging market local and hard currency debt, municipal bonds, securitized bonds, and currencies).

The market status quo: December vs now

The U.S. Federal Reserve (The Fed)

Having witnessed a material market sell-off in December, the U.S. Federal Reserve (The Fed) met on 30th January and indicated that they intend to slow down the pace of rate hikes over 2019. 

Market dynamics have shifted

This announcement changed the market completely - participants immediately stopped pricing in rate hikes and, as such, we saw a lift in U.S. equities within minutes following the announcement. As of 15 February 2019, equity markets globally are up 10%+ over December lows (according to the FTSE All-World Index), interest rate markets have repriced, credit markets have rallied substantially and overall, market sentiment has shifted positively since the lows of December. 

Unsurprisingly, this shift in market dynamics has also had strong implications on the views of the managers and towards the outcome of the survey more broadly. 

The 'Fed put': Genuine comfort or mistake?

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