GLOBAL - Invesco anticipates a further downturn in yields as the US Federal Reserve cuts rates to stimulate growth and inflation continues to fall.
In its latest global fixed income market strategy review the fund manager says it remains moderately long duration versus the JP Morgan Global Bond Index and has positioned itself for a modest flattening of the yield curve with longer-dated bonds outperforming shorter maturities.
Since the terrorist attacks on September 11, movements in bond markets have been extreme. With US recession now a virtual certainty, acording to Invesco, short-dated yields have fallen dramatically, whilst longer-dated maturities suffered from the perception that bond supply will increase due to substantive fiscal easing.
In addition, Invesco said:
* On a country relative basis, we are long duration in Europe and the dollar bloc and neutral in the UK. In Japan we are underweight. We are also long duration in Canadian bonds.
* We are cautious on non-government debt, with a neutral weighting in our global portfolios, but continue to look to take advantage of good buying opportunities.
* In currencies, we continue to favour European and dollar bloc currencies over the yen and we are neutral in sterling. Within the dollar bloc, the Australian dollar is our most favoured currency and in Europe we continue to favour the Hungarian forint and the Polish zloty.
Invesco added: “Fixed income markets in the UK followed the general trend in October, with falling yields and a steepening yield curve. However, looking ahead, the UK appears to be better set than both Europe and the US to weather the economic downturn and we therefore expect gilts to underperform.”
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