The first edition of the Invesco Global Fixed Income Study reveals that fixed income investors are anticipating the global economy continuing on its recovery and central banks starting their journey towards more conventional policies. However, for the most part investors do not envisage the typical normalisation of growth, interest rates, and inflation which would be expected with a post-slump recovery. Rather, investors believe a secular shift has occurred, and many subscribe to a ‘new normalisation’, featuring:
Slow to moderate rates of economic growth.
Gradual increases in interest rates by central banks, resulting in yield curves rising at the short end faster than at the long end (a flattening of yield curves).
Little risk of global inflation and a breakdown of the traditional inflation-unemployment theory. This represents the majority view of respondents but there are divergences. While views are dispersed both positively and negatively, it’s notable that divergent views were skewed to the downside, i.e. despite the central scenario being a relatively subdued outlook, the next most common view is more pessimistic. This has significant impacts for fixed income strategies, as explored in theme 3.
Overall, respondents have a broadly positive outlook, as shown in figure 1. Over half of respondents expect a strengthening global outlook and few disagree, highlighting positive sentiment driven by improving consumer confidence and spending, better GDP growth, and low unemployment. In such a scenario, most investors feel that central banks are right to raise rates and reduce balance sheets. Yet as the data implies, around one third of respondents see conditions essentially ticking along at the current tempo, and 17% see rising rates as a policy mistake.
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