New Capital's Leithead on where to invest in the fixed income landscape

Investment grade remains attractive

The monetary policy debate is likely to continue to dominate volatility in government bonds markets, and its ripples are likely to impact broader fixed income markets.

The Federal Reserve will now likely hike rates one more time this year, having capitalised on somewhat over-exuberant growth expectations to push short-term rates higher. Longer-term expectations have been tempered by a lack of fiscal and regulatory reform in the US, and as a consequence we believe any increase in rate expectations is likely to be accompanied by a flatter yield curve. In contrast, inflation in Europe is forecast to pick up in the short term and move off a distressingly low level. We would avoid EU government bonds and anticipate a steeper curve.  Investment grade s...