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Prepare for the pivot with short duration credits
The inversion of the yield curve makes short-dated credits appropriate to gain the benefit of higher yields, while enjoying lower duration risk and transaction costs.
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Zusammenfassung
- The yield curve inversion is temporary
- Short-dated credits typically outperform cash in the period after policy rates peak
- Diversification benefits and low transaction costs add to the allure of short duration
The global economic outlook remains uncertain with US and European economies having to digest higher rates and tighter lending conditions and Chinese economic growth falling significantly. As a result, we think it's very likely that bonds will soon re-assume their role as a hedge against equity market volatility. Whether you believe in a soft landing or a hard landing, the global economy is set to slow and central banks will ultimately respond by ending their respective rate hiking cycles.
In this paper we explain why, with the approach of the peak in policy rates and with global yield curves remaining very inverted, investors should take the opportunity to position themselves in short duration credits to capitalize on the higher rate environment.
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