BNP Paribas: Bonds no longer good hedges
The ending of QE ends will lead core bond yields to move structurally higher. This will make bonds less useful for portfolio hedging purposes.11.01.2019 | 09:30 Uhr
Summary
Central bank tightening fuels volatility
- Financial markets are slowly
grasp that central banks are no longer underpinning asset prices
- Sharper and sudden market moves
look set to become the new norm
- This is likely to mean a renewed
emphasis on fundamentals
Bonds no longer good hedges
- The
ending of QE ends will lead core bond yields to move structurally higher
- This
will make bonds less useful for portfolio hedging purposes
What’s in the price?
- Some bad news is already priced
into equities
- Previously elevated valuations
have corrected sharply
- Stocks have started pricing in more bearish scenarios – this could have further to run
Asset allocation
Strategically neutral equities
- We still expect weaker (but
robust) global growth with risks skewed to the downside
- With more volatility becoming the
new norm, we remain structurally neutral equities
Underweight fixed income
Underweight core bonds on expectations of gradually rising inflation and monetary policy normalisation
Aiming to be tactical
With more volatility expected, we seek to be ever more tactical and reactive around our main structural proposition
Exploiting asymmetries to hedge and diversify
We continue to hold positions with asymmetries to our scenario analysis
Download the full report: Asset Allocation Quarterly