Source: 2019 Schwab Market Outlook
Columbia Threadneedle’s head of global rates and currency, Adrian Hilton, says that he also expects the US growth story to cool in 2019.
“Given that we think we have seen the best of US growth, our bias is towards lower yields over the course of 2019,” he explains.
“Against that, the normalisation of the Fed's balance sheet, and the evolution of monetary policy elsewhere, may exert a positive influence on term premia, which have been very compressed in all government bond markets.”
Vontobel’s Mr Holman expects European credit to outperform the US throughout 2019, and is anticipating that defaults will continue to be low throughout the coming 12 months, albeit up on the levels witnessed in 2018.
This view is shared by Columbia Threadneedle’s Mr Hilton and BlueBay’s Mr Riley, who agree that the eurozone looks robust from an economic standpoint, thanks to steady employment growth, increasing wages and relaxed borrowing conditions.
“European credit looks relatively attractive,” says Mr Riley. “We think that European credit, including bank debt, offers value at the current valuations.”
However, risks to watch for within Europe include any impact from a slowdown in China, according to Mr Hilton, who warns that the eurozone has become heavily reliant on exports in recent years.
He notes that the shaky relationship between the Italian government and the European Commission must also be watched closely by fixed income investors.
Then, there’s Brexit
Unsurprisingly, few investors were willing to give a firm view for how Britain’s scheduled exit from the European Union will impact UK fixed income assets.
Mr Riley simply remarks that there will be inevitable “associated complications”.
The true extent of such complications, of course, remain to be seen.
Joe McGrath is a freelance financial journalist