The legal person estimates the 2023 economic landing 3 scenario, optimistic about the bond market (file photo)

[Reporter Wu Xintian/Report from Taipei] Banks in Europe and the United States reported financial crises one after another, and the financial market continued to fluctuate.

A legal person simulated the three major scenarios of the global economy in 2023, suggesting that investors focus on investment-grade bonds, pair them with non-investment-grade bonds, and grasp the time point when inflation peaks and interest rate hikes slow down to create capital gains.

According to the analysis of Schroeder's European and American debt credit team, the global economy in 2023 can be divided into three major scenarios: soft landing, hard landing, and no landing.

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If the economy can achieve a soft landing, it will be in a good direction. In this situation, although it is still difficult for inflation to quickly return to below 2%, the fiscal measures implemented by the governments of various countries will lead companies and households out of the energy crisis and accelerate The rapid unblocking of China will also help boost the European economy, providing considerable upside for bonds, and investors have the opportunity to obtain excess returns.

However, a hard landing of the global economy, or even a non-landing, will be relatively tricky for investors.

In this scenario, central banks around the world will inevitably have to tighten too much to curb inflation, but it will also hurt the economy at the same time.

However, as the central banks of various countries are gradually approaching the end of the interest rate hike cycle, the current relatively high bond yields still provide investors with downside buffer and protection space.

Julien Houdain, who is also the top director of Schroder’s European debt credit team and is also the manager of Schroder’s global income bond manager, explained that based on past historical experience, the corporate bond market has never had negative returns for two consecutive years, and most of them rose the next year. After the stock market faced its worst year in 50 years in 2022, 2023 is expected to usher in a good year for the bond market.

He further pointed out the three key points of investment in the bond market this year, and suggested that investors take advantage of the excellent timing when inflation peaks and interest rate hikes slow down, and choose investment-grade corporate bonds that evaluate the attractiveness of masks for diversified deployment, and actively pursue excess returns.

According to Julien, according to Schroeder’s forecast, the U.S. inflation rate is expected to drop to 3.6% by the end of 2023, and as the Federal Reserve’s pace of raising interest rates slows down, the tightening policy will come to an end, and the negative factors in the bond market are gradually being eliminated .

In addition, the value of investment-grade bonds has emerged after a sharp correction in 2022. At present, it has been found that funds are gradually returning to the bond market, and the volatility of the bond market is gradually slowing down.

And observe that although corporate profits have been revised down, the leverage ratio remains stable. Unless the profit declines sharply more than expected, the risk of a sharp rise in the leverage ratio is low.

Although the Federal Reserve is expected to maintain a high interest rate level for a period of time, according to historical experience, when the policy rate remains at a high level, global investment-grade bonds and non-investment-grade bonds both show an upward trend. The default rate is still at a low level. It is estimated that even if the default rate may increase in the future, the range is still limited, highlighting that the risk is controllable.

Therefore, Julien suggests that investors can choose to focus on investment-grade bonds, supplemented by non-investment-grade bonds, and take advantage of the time when inflation and interest rates peak to broaden the sources of income from multiple types of bonds to create higher return potential.

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