Bond yields and credit spreads have drifted lower over the summer. In September, higher levels of issuance and the realisation that the tapering of bond purchases is not far away are risks for the market.
However, the backdrop of gradually slowing growth and inflation and clear communications from central banks should ensure that there is no sharp sell-off. Strategy-wise, we continue to favour high yield and convertibles and see longer-term value in emerging markets.
September is often the time when there is a notable change in the investment climate. The return from the summer holidays sharpens investor focus on the final stretch of the year as a period to bolster returns and to minimise event risk so as not to undermine any gains made in the early part of the year.
After a meaningful growth rebound so far in 2021, the first question is likely to be, how long can the growth persist? There may still be some pent-up consumer and business demand to feed through, but these factors are starting to fade in many areas. Monetary policy remains very loose but this is likely to change before year-end with both the US Federal Reserve (Fed) and European Central Bank (ECB) becoming nervous about strong growth and high inflation prints. Fiscal policy is also becoming less expansionary as governments roll back their support.
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