2023-12-22 10:21:05
“The potential for monetary easing by central banks remains limited” and “underlying inflation should remain above 2% in developed economies.” This is what Insight Investment, an affiliated investment company of BNY Mellon Investment Management, says in its 2024 outlook. “This should logically benefit the bond markets, particularly high yield, which should post returns higher than 6-8 % usually observed in the long term on stocks”, she specifies.
“A higher neutral rate means that the policy is not as restrictive as one might think,” underlines the manager. “Longer term, if economies experience a cyclical recovery, central banks will likely struggle to raise interest rates to levels restrictive enough to effectively control inflation, as the impact on asset prices in general would become politically intolerable.
Underlying inflation above 2% “should create a dilemma for central banks as unemployment rises and calls for looser policy multiply.” Some may prove much more willing to adapt their policy frameworks to this new reality than investors currently believe, thereby allowing inflation to remain at higher levels than in the past.
Insight Investment targets “High Yield”: “For the first time in years, high yield lives up to its name, offering very high levels of income at a time when defaults are expected to remain limited,” underlines the manager. “This means that it is now possible to contractually guarantee returns higher than the 6-8% usually observed in the long term on equities.”
“Rising yields pose a valuation problem for stocks.” If “for many years, very low rates fueled a ‘Tina’ (“There Is No Alternative”) discourse regarding stock ownership”, “we are now moving towards a ‘Taba’ discourse” (“There Are Better Alternatives”).
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