Deflation. Liquidity. Greece. These are the words of 2015 if you are a bond investor. The year started off with a bang, or rather a break, when the Swiss National Bank (SNB) announced the surprise abandonment of the peg with the euro. This was only a mere week before the European Central Bank (ECB) embarked upon an historic quantitative easing programme. Deflation took hold in Europe, government bond yields fell to historic lows, and the US Federal Reserve did nothing.
Fast forward to today, and it seems like we have lived through a full market cycle in only six months. Government bond yields have risen as the European economy has improved; the Greece political situation has also weighed on investors’ minds. In the UK, we had a surprise result in the General Election as investors granted the Conservatives a majority in parliament. And in the US, the undeniable strength of the US labour market may finally be translating into higher wages, leading many to expect the first FOMC rate hike since 2006.
In this edition of the M&G Panoramic Outlook, Jim Leaviss – Head of Retail Fixed Income, gives his views on bond markets and the global economy for the remainder of 2015. Some of the topics covered include credit valuations, bond market liquidity, and global currency markets.