FICC

In this report, we present our performance review of the BCA Research Global Fixed Income Strategy (GFIS) model bond portfolio for the Q2/2023, and the outlook and scenario analysis for the next six months. The portfolio return exactly matched that of the benchmark index during the quarter, as modest gains on government bond allocations in the US, UK and core Europe completely offset losses on spread product underweights. Looking ahead, the portfolio is positioned to capitalize on an expected slowing of global growth over the rest of the year through an overweight stance on government bonds versus spread product and above-benchmark duration tilts in the US and core Europe.

Special Report

While excellent state & local government balance sheet health will remain a tailwind for muni returns, poor valuation prompts us to downgrade the sector from overweight to neutral.

In this Insight, we review the latest Bank of Canada and Reserve Bank of New Zealand meetings, and suggest the appropriate bond and currency strategies.

An outlook for inflation and Fed policy following this morning’s CPI report.

This week we present our Portfolio Allocation Summary for July 2023.

A perspective on the recent increase in US bond yields and this morning’s employment report.

A look at how US bond yields responded to yesterday’s strong economic data and this morning’s soft inflation print.

Special Report

This week’s Special Report updates our US default rate forecast and considers whether corporate bond spreads offer value given the trend in credit fundamentals. We also consider the relative value proposition between investment grade and high-yield credit and between European and US corporate bonds.

The Bank of England delivered another outsized rate hike this week, as the central bank remains focused on overshooting inflation and not the weakening economy. The BoE now knows that it must push the UK into a deep recession to cool off inflation, which should now be considered the base case scenario for the next 6-12 months. A major cyclical buying opportunity for UK Gilts is approaching for patient investors.

This week’s report examines three potential catalysts that could push Treasury yields meaningfully higher within the next few months. We also consider the rebuild of the Treasury’s cash holdings and its implications for the Fed’s balance sheet policy and financial markets.