Build A Better Bond Portfolio

While a number of aspects of our outlook for bond markets remain unchanged since we published our Building a Better Bond Portfolio earlier this year, the investment landscape has clearly changed dramatically in recent weeks.

This companion note is intended to highlight a few key changes in our outlook in light of Russia’s invasion of Ukraine and evolving central bank positions. Our outlook here is more opaque than normal due to the consequences of the tragic events unfolding in Ukraine.

Where to Look, What to Do in 2022 — Revisited

• We foresee a moderate slowdown in growth with inflation starting to abate later this year but note substantial downside risks around both.
• This could have big consequences for central banks (policy error) and many capital markets (increased volatility and risk premia).
• For now we stick to our view that the market has, broadly speaking, priced in too many rate hikes over the coming quarters.
• Re-pricing of the inflation risk premium is critical across many bond segments.
• The broad move higher in yields may begin to offer investors an opportunity to consider a phased entry or an expanded allocation to some spread assets.