FICC

This report looks at the likely path for the dollar and bond yields over the next 6-to-12 months.

The bond market priced out a lot of recession risk after this morning’s employment report, and the 10-year Treasury yield has moved back into the Soft Landing Zone. We assess the data and consider whether we need to change our cyclical positioning.

Our Portfolio Allocation Summary for October 2024.

We consider the possibility that lower interest rates could lead to an increase in household borrowing, prolonging the economic recovery.

This insight parses through the RBA’s latest policy decision, and makes recommendations on whether to expect any rate cuts in 2024, and beyond.

We update our corporate default rate model and consider the implications for corporate bond spreads.

Special Report

In this report, we argue that the Bank of Japan is unlikely to hike interest rates this week, but the relative trajectory of bond yields in Japan is higher. This warrants an underweight position in JGBs and a leveraged bet on a higher yen. The positioning for equity investors is murkier, as progress on corporate reforms is necessary for a rerating in Japanese shares. That is not yet very clear. The bottom line is: Stay long the yen.

We update our bond views following today’s 50 bps rate cut.

The ECB will cut rates once more this year; however, markets underprice how far it will ease next year.

Some thoughts on this morning’s US claims report and a preview of next week’s FOMC meeting.