US

As 2021 wore on we became increasingly concerned that the disconnect between asset prices, economic fundamentals and monetary policy was becoming more acute.

With inflation soaring and the economic recovery looking more fragile, we look at three famous central bank policy errors to demonstrate why they can be so dangerous for investors, and consider how a fixed income portfolio can be strengthened against the risk.

Powell’s hard line may have surprised investors, particularly in light of recent market volatility and increasing geopolitical risk in Eastern Europe, but the Fed’s fear of prolonged higher inflation looks to be trumping those concerns.

Inflation was the dominant theme across financial markets in 2021, and we think it is likely to be a big driver of returns again in 2022.

It has been a very interesting start to the year in the rates sector of the market.

As we enter the third year of the pandemic, most market participants are asking themselves (once again) if this will be the year when supply chain issues finally abate.

Given the swiftness of the Fed’s pivot we think risks are tilted towards the central bank doing more and not less. We wouldn’t even rule out a 50bp rate hike at some point.

Jerome Powell’s recent testimony to the Senate Banking Committee, in which he said the Fed would discuss a faster taper of its asset purchases at December’s FOMC meeting, has led to intense speculation that we could see a move this week.

The labour market in the US shows little sign of weakening, despite the huge number of jobs already created this year.

How do investors deal with inflation? Do central banks know what they’re doing? And does anyone know where Treasuries are heading? CEO Mark Holman tackles the bond market’s biggest questions as he looks ahead to 2022.

What we are currently experiencing is a disconnect between monetary policy, the economy and the markets, a disconnect that in our view will struggle to survive much longer.

With rising government bond yield curves one of the biggest concerns for fixed income fund managers going into 2022, Eoin Walsh points to interest rate swaps as one option for reducing the rates risk of a portfolio without impacting its credit exposure.