Fixed Income

“Any major crisis in the Northeast Asian region, especially one involving a crisis within Japan’s borders, is likely to be handled very aggressively by the Bank of Japan (BOJ), with it bending the rule-book as much as the Fed did during the Global Financial Crisis or as the ECB has done in the past five years.”

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Our Tokyo Fixed Income team explains its view on the Japanese labor market and its effect on consumer inflation and Bank of Japan policy.

“We all have heard of the term 'interest rate repression' for how central banks have kept rates at ultra-low levels, but this has only been successfully maintained due to what I call 'inflation repression.'”

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

As commodity prices have risen, the Australian economy is set to benefit from these continuing gains.

US Treasury (UST) yields rose in the first half of the month buoyed by hawkish comments from the Federal Reserve (Fed), a solid US jobs report and possible scale back of quantitative easing (QE) by the European Central Bank (ECB).

The Global Investment Committee remains optimistic about global economy and equity markets despite their recent strong equity rallies and increased political risks.

US Treasury (UST) yields traded in a tight range in February. Risk assets rallied and UST yields rose in the first half of the month, on the back of the prospect of tax cuts and a Dodd-Frank overhaul in the US.

Asia’s Credit market has come a long way since the Asian Financial Crisis of 1998, having evolved into a large, deep and liquid market.

With President Trump announcing that he will be releasing his tax plans in the coming weeks, we have shifted to a more cautious position on US duration. The risk is that President Trump announces a sizeable stimulus package, with the backing of the broad Republican base.

US Treasury (UST) yields ended higher in January as weaker-than-expected payroll data led markets to moderate their forecasts for Federal Reserve (Fed) rate hikes in 2017.

Credit markets are expected to have another positive year. We expect economic growth in Asia to be stable but see some potential downside risks.

Global economic, credit and interest rate cycles are becoming desynchronised. In this paper, we introduce Nikko AM’s first generation default probability model for corporates.

In-depth report: Economic growth in Asia is expected to remain broadly stable in 2017. While there will be greater external uncertainties as well as country-specific challenges, Asian economies are, on balance, better equipped to deal with external pressures compared to a few years back.

Our Senior Portfolio Manager for Emerging Market Debt in London forecasts that in 2017, this asset class could well match 2016’s achievement.

As rates could rise further in 2017, we expect that a broad range of investment themes will help generate enough alpha performance to offset the rates impact.

USTs weakened further in December, as caution prevailed following the November sell-off. As widely expected, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps).

Nikko AM's Global Investment Committee's 2017 Outlook — More Economic and Equity Reflation, Despite Less Dovish Central Banks

Our China Fixed Income expert in Singapore expounds upon how the Trump election is forcing China into taking specific economic policies.

UST yields surged in the month as Trump's election victory prompted expectations of a significant fiscal package and possible upside inflation risk under the new administration.

Following the US election, we have seen bond rates continuing to increase, a stronger US dollar, firmer commodity prices, and a US stock market at all-time highs. Is optimism around the US President-elect’s fiscal expansion masking the true deflationary picture?

We expect Italian assets to underperform until it becomes clear who will be able to form and lead a new government. Nevertheless the outcome of the referendum was already priced into financial markets.

October was another difficult month for Global credit markets, in particular for Investment Grade bonds. By contrast, more risky High Yield bonds outperformed.

Neither Brexit nor Trump’s win was an accident – ‘the people’, in particular the working and middle classes, are purposefully and deliberately giving the political elites a thump on the nose.

USTs ended lower in October. Better US economic data and a hawkish statement from the Federal Open Market Committee (FOMC) bolstered expectations of a December interest rate hike.

USTs ended September mixed. While the Federal Reserve left interest rates unchanged and the Bank of Japan reinforced commitment to monetary easing, the ECB's lack of new stimulus disappointed the market.

It has continued to be a wild roller-coaster ride for investors, and unfortunately, it is not likely to be very calm for the foreseeable future. Investors must keep a keen eye on geopolitical risk and be ready to act if such appear to accelerate into a situation that could significantly impact markets.

QE policies have had a material impact on bond yields and valuations. We believe that the evolution of these policies will be more important than fundamentals in indicating when bonds can break the cycle of ever-declining yields.

Central bank policy from the US, Japan and Europe are strongly affecting the current global fixed income markets. New Zealand and Canadian economies also face continued pressure.

USTs ended marginally lower in August as the market adjusted to the possibility of a Fed rate hike, buoyed by sustained resilience in the labour market.

Many market commentators have been speculating that we are finally coming to the end of the bond rally that has endured for the past 35 years. It's worth noting that this is nothing new—we have heard similar suggestions many times before over recent years.

In developed markets, global bonds have benefited from recent flows out of Japan into positive-yielding markets. The New Zealand and Canadian economies face continued pressure and a September US rate rise is now looking more unlikely.

US Treasury (UST) yields ended July mixed: yields of shorter maturities climbed, whilse those of longer maturities fell.

The major consideration for markets in June was the Brexit vote in the UK. Although we are sceptical about the most pessimistic scenarios for the UK, there will be some negative impact on growth.

US Treasury (UST) yields gained in a volatile mon across asset classes. The US Federal Reserve (Fed) scaled back projections for raising interest rates, while the UK voted to leave the EU by a 4% margin, surprising markets.

Emerging Market reforms won't stop or pause with the current market recovery.

Following our analysis of the recent UK vote, our Emerging Market debt team in London discusses Brexit's potential ramifications for this asset class.

The immediate fallout from the Brexit win has been a strong flight to safety. US Treasuries rallied with the UST 10-year yield down to 1.44%, lower by 31 basis points (bps) on 27 June 2016.

Uncertainty after Brexit vote, but the correction in valuations and market volatility could provide buying opportunities in some fundamentally strong credits.

Although it is still too early to determine the full implications of Brexit over the longer term, in the short term, we can expect significant market volatility as uncertainty prevails, but this does not mean that investors should panic.

US Treasury yields remained largely unchanged in May. The impact of a disappointing US payroll figure was offset by the release of the US Federal Reserve’s April meeting minutes, which revealed that most policymakers favoured a rate hike in June should the US economy continue to improve.

Continued easy monetary policy in Europe and Japan will be supportive for global interest rates, but the case for further limited rate hikes in the US remains in place for 2016.

Our oil experts in London and New York update their bullish views in January with new facts, while retaining their positive intermediate-term view on oil prices.

Our global rates and currencies strategist in Australia lays out his dovish Fed scenario as an alternative to our house view. In it, he expects the Fed to wait until September or later to raise rates, and states his case that the Fed’s actions do not affect US bond yields.

US Treasury (UST) yields rose in April, as hopes of stabilization in the Chinese economy underpinned demand for riskier assets.

Our Chief Global Strategist explains the reasons why there is too much unjustified pessimism about Abenomics.

Our Asian currency expert discusses the potential ramifications of the increasing CNY-orientation for Asian currencies.

What is more important for credit spreads in the current environment: the fundamentals or central bank actions? Our research suggests that since 2010 the answer has been central banks and, in particular, the US Federal Reserve.

For the next 12 months, we are quite positive on performance prospect for global credit, singling out five investment themes.

Nikko Asset Management's Global Investment Committee met on March 29th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.