(UBS)
A recent International Monetary Fund report estimated global public debt to exceed USD 100tr by year-end, with the US and China driving the surge.
But we believe the macro backdrop remains constructive for fixed income. The latest comments from Fed policymakers suggested that the US central bank remains on track to cut rates further amid broad disinflation, as the fed funds rate remains well above the Fed’s estimate of neutral. With the Fed’s latest Beige Book suggesting stagnant economic activity in most parts of the US, policymakers are unlikely to view actively restrictive policy as necessary.
In addition, we believe credit fundamentals on investment grade (IG) corporate bonds are solid against a resilient economic backdrop, with limited credit quality deterioration. We see potential returns in the high single digits over the coming 12 months.
Takeaway: We continue to recommend investors shift excess cash into quality fixed income as the rate-cutting cycle advances and erodes cash returns. Investors can also consider diversified fixed income strategies to further enhance portfolio income.
For more, see our Weekly Global: Israel Responds , published 28 October, 2024.
