While some investors are speculating that central banks will deliver a recession as they seek to combat high inflation, Oreana Financial Services’ Isaac Poole still believes a hard landing can be avoided. But it will take a change of tack. “We think the Fed is moving closer to the next phase of tightening where it will hike far more gradually than markets expect,” he says. “We don’t think we have definitely seen the highs in Treasury yields, but we may be moving to a slower moving yield environment.” Isaac says the next phase will begin when it’s clear inflationary pressures have peaked. “We continue to expect inflation to drift lower over the next 12 months,” he says. “The Fed are aware of this path despite talking a tough game now. They will begin preparing the market for a less aggressive hiking cycle over coming months.” And that means it’s time to look at the battered bond market again, he says. “We think government bonds are now offering a good combination of income and downside protection,” Isaac says. “We don’t expect a recession in the near term, but duration is the best way we have in our portfolios to protect against that.”
(Source: Ausbiz)
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