Culled—Proshare
April 4, 2018/ARM Research
Based on consensus estimate, a lower yield environment is upon us. But how low and for how long remains a tough call with lots of guesstimates.
In this piece, we analyze the current dynamics in the Fixed Income market and we provide a 12-month view of the fixed income market based on our outlook on inflation, the currency market, the movement in monetary policy tools, foreign portfolio flows, and fiscal policy.
Consequently, we provide a crystal ball on yields over the forecast period and recommend a strategy to play in the FI market.
The current low-yield environment appears ready to continue in the near future and perhaps beyond. Thus, traditional sources of high quality income may no longer be sufficient to meet investors’ needs.
At the same time, a strategy focused on picking the highest-yielding securities may leave investors vulnerable to significant downside risks or market shocks. In this low yield environment, the key challenge will be to generate a high and sustainable income stream from traditional sources such as government bonds.