What are the most important factors affecting global bond markets today?
Alexander Wolf: They would be the Federal Reserve’s impending rate hike, the quantitative easing (QE) policies in Europe and Japan, and how those trends will impact dollar liquidity conditions and the strength of the dollar. Also the European Central Bank’s QE program is definitely supportive of European bonds, and could result in a resurgence in European growth. It’s a complex global situation where investors will find it challenging to identify specific winners and losers.
Richard House: How the Greek situation is resolved will affect the whole European bond market. Investors need to pay close attention to Greece, as that should temper the bullish European bond market story.
Mark Foster: Since the U.S. and Europe are at different ends of the policy spectrum, I would expect to see multi-speed global growth. When currencies, valuations and policies are changing, a relative value strategy comparing different countries to each other may be quite useful.
Where do you see the best growth prospects this year among the large global economies?
Wolf: The best prospects in the developed markets would be the US and UK, where signs of improving labor market strength indicate the recovery has a solid footing.
House: In the emerging markets, Brazil is having problems at the moment. We are very optimistic about India, given the reform effort there. It’s a similar story in Indonesia, Poland and Hungary. Obviously, Russia also has its issues, and we’re avoiding it because we’re very uncertain about its outlook. So it is a very mixed picture and impossible to generalize.
What about the upticks in inflation?
Wolf: Wage growth in the US and UK and stabilization of fuel prices indicate that we will start to see some increase in inflation in the second half of the year. In emerging markets, there was an uptick in India due to higher food prices. However, excess capacity and fairly weak demand are keeping inflation fairly low in other developed and emerging markets, especially China.