Monetary Policy

After unleashing the strongest combined emergency package we have ever seen in 2020, central banks are now entering perhaps the most challenging phase of their COVID-19 response, trying to balance the economic recovery while at the same time having to reassure the markets they can control the threat of runaway inflation.

In TwentyFour's Multi-Sector Bond update on Thursday 13th May 2021, Partner & Portfolio Manager Eoin Walsh provided an update on investment themes and positioning in the fixed income market.

Had this happened a month ago, we suspect the move would be materially more pronounced, and the muted reaction indicates to us that markets are now quite comfortable with the current levels of expected growth, forecast inflation, and yields.

The Fed maintained its dovish stance on Wednesday and offered very little in the way of resistance to the ongoing rise in US Treasury yields.

The bear steepening of the US Treasury curve has undoubtedly been the story of 2021 so far for fixed income investors, many of whom will have felt the adverse impact of the broad rates sell-off on their portfolios.

Partner and Portfolio Manager Felipe Villarroel reflects on markets in 2020 before giving his inflation outlook for 2021

Yesterday the ECB released their guidance to banks regarding shareholder distributions. They have reiterated that banks should exercise extreme moderation on variable remuneration (bonus payments) and have set limits for dividend payments to equity holders and prudence on any share buy-back schemes.

Speed of market movement will be a feature of this recovery as the market realises many of the same trends are firmly in place, and with the incredible technical backdrop this means lower yields as the cycle progresses.

Thursday’s ECB meeting left us in little doubt that we should expect some serious action in December, including the possibility of some new, as yet unused measures.

Unlike the past six months, where nearly all new deals performed well in the secondary market, from here on in that is far from guaranteed. Expect winners and losers.

George Curtis discusses Q3 performance for credit markets and provides his outlook for the rest of the year.

Overall, in our view there may be some temporary volatility ahead which investors can try to sidestep or even take advantage of, but it’s probably not worth trying to be too cute as our medium term outlook is still constructive.