The ample liquidity (i.e. readily available funds) provided by central banks, combined with lower Covid-19 mortality rates and increased hopes for a vaccine leads us to upgrade our view.

Prices remain at historically high levels whilst the effectiveness of government bonds as a source of portfolio ‘protection’ remains limited.

We continue to expect moderately positive returns as global economic activity improves.

Despite consistent contraction in credit spreads, we remain positive as central bank monetary policies continue to support credit markets. The credit spread is the margin that a company issuing a bond has to pay an investor in excess of government yields and is a measure of how risky the market perceives the borrower to be.

We continue to have a preference for shorter dated US Treasuries (US government bonds) as longer dated bonds are more vulnerable following the Federal Reserve’s (Fed) announcement to target an average inflation rate. The prices of shorter dated bonds are less sensitive to changes in interest rates.

Relative to other developed markets, we believe there is less value in gilts (UK government bonds) given their poor relative returns. This may lead to investor outflows in the coming months.

Germany’s €130 billion stimulus package, together with the €750 billion EU Recovery Fund, will effectively result in debt mutualisation within the eurozone, which will be negative for German interest rates.

Inflation is likely to remain significantly lower than target, therefore the Bank of Japan will be limited to keeping unconventional policies in place for longer.

We remain positive as the Fed recently announced it would tolerate higher inflation, indicating that highly accommodative monetary policy will remain in place.

We expect central banks to remain very accommodative, in other words maintain loose monetary policy. However, there is likely to be more differentiation between EM countries. Countries in Latin America and Asia are likely to provide more upside for investors and higher real yields.

Whilst spreads have narrowed significantly, the Fed still has the capability to buy more US investment grade (IG) credit if necessary, therefore supporting the market.

Fundamentals are improving as corporate earnings have surprised on the upside. The European Central Bank’s support programmes continue to aid European IG credit.

We continue to favour higher quality corporate credit based on more attractive valuations and a weaker US dollar.

Fiscal and monetary stimulus continues to support the market. However, US high yield (HY) is less attractive than European HY as the fundamentals are weaker.

This remains our preferred market as stimulus packages announced so far should support European HY bond issuers.

Although oil prices are likely to be range bound in the short term, we expect them to move up in due course as global economic growth returns.

We remain positive as the US dollar remains weak and real rates continue to be suppressed. Gold remains one of the main beneficiaries of central bank support measures.

Whilst demand outside of China could increase, mine supply constraints are easing, which could lead to higher levels of supply overall.

We expect prices, currently hovering at all-time lows, to start to recover as lockdowns ease and economic activity returns to more normal levels.

We expect the US dollar to remain weak as the Fed remains committed to extremely loose monetary policy to stimulate economic activity.

Headwinds remain for the pound as the Bank of England announced that it would be willing to consider negative interest rates.Brexit risks are another factor.

Valuations remain relatively cheap by historical standards, and as we move from a recession into a global recovery phase we expect the euro to strengthen.

Downgraded to neutral as risk scenarios that would favour the yen have become less likely, e.g. falling Covid-19 mortality rates in the US.

We remain neutral on the Swiss franc given its high relative valuation, whilst acknowledging its continued role as a perceived “safe haven” currency.