Are you crazy about bonds? There are signs of euphoria. From January XNUMXst on futures on the BTP rises by a good 8 percent in line with the recovery of Waist: a nice revenge after the hardships of 2022, the blackest year. Certain, Business Square for now it is no different: on the eve of the bank profit season (starting with Unicredit on Tuesday 31st) the average growth of the main index is close to 10 per cent.
Bond: for analysts 2023 will be the year of redemption
But both the size of the market and the appreciation of the experts play in favor of the bonds. The recent success of Eni bonds at 4,30% it confirmed the existence of a Robusta demand of the retail market, not at all discouraged by the bad results of last year: more than 300 savers lined up for a total request exceeding the 10 billion, five times the offer. A great success, favored by the "popular" cut (minimum of 2 thousand euros against 50-100 thousand euros for issues aimed at institutional operators).
For once, then, the orientation of the drawers receives the consent of the professionals. If there is more than one doubts about the stability of the stock market in the near future, in the face of prudence preached by central banks, observers are unanimous in maintaining that the collection of bonds it has just begun. The reasons? Simple. Whether Europe can limit the damage to growth thanks to falling energy and other commodity prices, or whether the risk of recession materializes, it is likely that central banks will be able to put inflation under control.
By extension, we read in a report by schroders, is about to materialize “a very interesting environment for fixed income from the point of view of evaluations. Once market participants begin to de-weight inflation and grapple with the deteriorating growth environment, there will be an “excellent yield potential in all global fixed income markets”.
It is no different than the advice of gurus Ubp. “In our opinion – writes the CIO Mikhael Loik – equity multiples are still too high. Especially in a time where fixed income instruments deliver attractive returns with much less risk compared to actions. As a result, having tactically increased exposure to benefit from the bear market rally, we recently exited equities to buy high-yield bonds in the short term".
even Alessandro Fugnoli, generally cautious and problematic in buying indications, has no doubts, After having recommended prudence towards the stock market, the strategist of Kairos emphasizes that “Bonds can and should be bought right away also for the repurchase risk hedging function of a recession” as was not the case last year.
Bond: in 2023 a storm not seen since '69
Among the worst things that 2022 has reserved for investors, comment the experts of RBC Blue Bay there was in fact "the inversion of the correlation between stocks and bonds". The traditional 40/60 relationship between the two investment classes, which has always been a guarantee of the right mix between risk and security, has disappeared. On the contrary, moving in the same downward direction, the two asset classes have in fact ceased to act as mutual shock absorbers. Inflation, rising interest rates and geopolitical tensions weighed on equity, bonds were hit by the monetary tightening substantial and sudden imposed by central banks”. A kind of storm that has been happening since 1929 only three more times: in 1931, in 1941 and in 1969.
Bond: danger of volatility, favor defensive assets
But now, as markets focus shifts from inflation fears to recession fears, the correlation between bond and equity returns is set to turn negative again. With a caveat: thanks to geopolitical tensions, from Ukraine to possible crises between the US-China, the real danger is volatility, which will affect corporate profits. Hence the advice to continue to favor defensive assets over cyclical and growth-sensitive ones until the trough of the recession and the subsequent recovery begin to appear: better thecore bond and high quality credit which offer a relatively secure income. Waiting to collect a prize in the event that, in 2024, the war on high prices is won once and for all. And rates have taken the path of descent as expected Olivier Blanchard. The most followed economist in the world is convinced that, once emergencies are overcome, we will return to low rates because economies “are too weak to afford adequate returns”. Welcome in the meantime bond mania. Hoping that Eni has done school.
