September is not usually a good month for bond investors and this month proved to be no exception. Total returns for EUR investment grade (IG) and USD IG bonds were deeply negative at –2.8% and –4.7%, respectively as central banks are committed to bringing down inflation no matter the costs for financial markets or the global economy.

José Antonio Blanco, CIO 3rd Party Clients Switzerland, Swiss Life AM comments on the current state of the financial markets

Given the central banks’ focus on inflation and the labour market, both lagging economic indicators, the US Fed in particular might choose to overlook the first signs of easing inflationary pressure. Such signs can already be seen in commodity markets and market-implied inflation expectations, which have been in a downward trend since June. In Europe, the inflation story remains highly unpredictable due to the energy crisis and the ongoing fiscal response to it. Given the ongoing monetary policy tightening despite elevated recession risks, financial markets have started to show signs of distress in recent days with outsized daily moves especially in foreign exchange and fixed income markets. While credit markets are still holding up relatively well amidst very low new issue volumes and conservatively positioned investors, the prospect of a deeper and longer slowdown could start to weigh on credit spreads again.

This may also be of interest to you

Research

Konjunktur-3840x2160

Economics

Perspectives Economics November/December 2022

10.11.2022

Research

Finanzen-3840x2160

Financial Markets

Perspectives Financial Markets November/December 2022

10.11.2022

Research

Konjunktur-3840x2160

Economics

Perspectives Economics October 2022

06.10.2022

Research

Emerging-3840x2160

Emerging Markets

Perspectives Emerging Markets Fourth Quarter 2022

06.10.2022