Despite ongoing pandemic risks, equities remain attractive compared to bonds and an expected shift into economic recovery should continue to support equity performance.

Although bond prices remain at historically high levels and have limited upside, central banks will likely be successful in keeping volatility low in government bond markets.

We have downgraded our view as we await better visibility on fiscal stimulus plans after the US presidential election.

We retain a positive view overall, with a preference for higher quality, “investment grade” corporate bonds over lower quality non-investment grade (“high yield”).

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.

We maintain our view that there is less value in gilts (UK government bonds) given their poor relative returns.

Germany remains a very expensive market. The strong euro is also creating an additional headwind for the European Central Bank. 

Our view is unchanged. With inflation still likely to remain significantly lower than target, the Bank of Japan will need to keep unconventional policies in place.

The Fed recently said it would move to average inflation targeting and tolerate a moderate overshoot of inflation pressures, indicating that monetary policy will remain loose.

We see medium-term opportunities in Latin America and Asia as they are likely to provide higher real (inflation-adjusted) yields.

Although credit spreads have limited room to tighten further, record issuance continues in the US.

We remain positive, despite valuations appearing stretched on a historic basis as fundamentals have surprised given depressed expectations.

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

US high yield (HY) is less attractive than European HY as we see the fundamentals as weaker and recovery rates remain near record lows.

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

We have downgraded as supply/demand fundamentals will be less favourable over the next three to six months while volatility will remain elevated.

We have downgraded our view in light of the deepening bipartisan divide and the high hurdles for the Fed to further ease monetary policy. We prefer to wait for policy clarity before re-investing.

Prices are supported by strong demand from China, mine supply and scrap metal constraints.

We have downgraded as prices are now falling back towards pre-Covid levels. However, research and development expenditure remains supportive for productivity gains to continue.

We have upgraded the US dollar as it offers defensive properties at a time when government bonds offer less protection against financial loss.

We remain neutral as an increase in Covid-19 cases and Brexit uncertainty are creating headwinds for the pound.

We have downgraded as the upcoming US elections will likely generate some volatility in the euro. With Covid-19 cases on the rise, we prefer to wait for clarity before re-investing in the euro.   

As government bonds offer less protection against financial loss, we turn to the perceived safe haven of the yen to offer a degree of protection against the risk of a growth scare and/or escalating US tension.

We maintain our neutral stance on the Swiss franc given its high relative valuation, while acknowledging its longstanding role as a perceived “safe haven” currency.