Hugh Gimber was commenting in the context of US inflation hitting in at 5 per cent, its lowest level for almost two years.
He said: "The case for the Federal Reserve to hit pause on rate hikes is strengthening. With supply chain pressures easing and energy prices stabilising, the greatest inflationary pressures are now focused in two of the most backward-looking components of the inflation basket – namely shelter and core services ex-shelter.
"These two components contributed over 80 per cent of today’s headline inflation number, and more timely indicators point to a slowdown in both elements ahead. For the shelter component, house prices and new rental agreements have already rolled over which should weigh on shelter inflation over the coming months. Core services ex-shelter is very closely linked to wage growth, and the jobs data last week also offered further evidence that the labour market is starting to cool."
His view is that if inflation is peaking, then there is less pressure on central banks to put interest rates up which is beneficial for fixed income assets, as the capital value of the coupon from the bond today is preserved if rates are not rising and causing newer bonds to be issued at higher coupons.
Gimber added that a pause in rate rises would mean bonds could be restored to their traditional role in multi-asset portfolios of offering protection against recession risk, something which didn’t happen in 2022.
Jim Masturzo, chief investment officer for multi-asset strategies at Research Affiliates, said he found bonds “extremely expensive” for most of the past decade, but that as inflation falls it makes sense to own them now as they can provide an income, even if not a capital gain.
Daniele Antonucci, chief economist at Quintet Private Bank said US inflation was “still far to high” and so he expects interest rates to rise once more, but then feels rate rises will be paused.
He said many market participants anticipate US interest rates could actually be cut later this year, but his view is that such cuts won’t happen.
david.thorpe@ft.com
