Global Fixed Income Strategy Monthly Report

In this edition:

Macro

After lowering our US growth projection last month, we have further downshifted our US growth outlook following the Trump administration’s April 2 “Liberation Day” tariff announcements. We currently see the possibility of two equally weighted scenarios, depending on how US trade policy shapes up: an orderly slowdown or a recession.

Interest rate outlook

We are positive on the European sovereign bond market, as the European Central Bank is likely to continue to lower rates in anticipation of slower growth and inflation. We are also positive on UK rates. Recent domestic data has been consistent with 25 basis points in cuts per quarter signalled by the Bank of England. However, greater downside risk to global growth and tighter financial conditions raise the prospect of faster and deeper cuts.

Currency outlook

We have upgraded our euro stance to overweight. We expect European Union fiscal support and an expansionary German fiscal stance to result in upward surprises in growth relative to expectations, creating an environment conducive to euro strength over the medium term. We are underweight the British pound. The worsening global growth outlook is likely to lead to faster and deeper Bank of England rate cuts, removing the major selling point of the pound, which has been its relatively high carry.