A year to prepare and react
Also Interesting
2019 Outlook
We see increasing value in bonds and cash, especially relative to equities. US government bond yields have risen significantly over the past 12 months and, contrary to popular opinion, our assessment is that they will not rise dramatically in the coming 12 months (we believe 10-year yields will be capped at about 3.25%), especially if the pace of US interest rate hikes slows as we expect. Meanwhile, we have seen a significant widening of spreads, especially in the Emerging Market world, which presents both a short term tactical opportunity, as well as the prospect for healthy 12-month returns. Finally, cash deposit rates have risen from zero for a large part of the current cycle to a level where they offer a yield that is reasonably competitive relative to inflation and bonds, besides creating a source of dry power for tactical opportunities.
