Carry on while waiting for Fed and BoJ

While investors await the decision by the policy-setting boards of the Federal Reserve and the Bank of Japan, carry on remains the theme in bond markets. The Fed’s retreat from hawkish advances, the European Central Bank’s and the BoJ’s battle against positive yields and the Bank of England’s bazooka following Brexit have restored investor confidence that central banks remain committed to short-term stability, even if there is less conviction that they will achieve their objectives. While the economic outcomes in developed economies have been adequate (modest growth and low inflation), central banks have underwhelmed versus the stimulus applied. Calls are mounting for a change in policy. For the most part, the argument is that fiscal policy could be more effective in stimulating investment and generating inflation. While a shift to fiscal policy could occur and trigger an unravelling of various market conditions predicated on central-bank support, the probability of it happening is too low and the timing too distant for investors to be overly concerned. We discuss how we are positioning our bond portfolio in “Carry on Fixed Interest”. (VIEW LINK)