Themes and implications from the Global Fixed Income, Currency & Commodities Investment Quarterly
We have doubled our probability of Recession from 20% to 40%, reducing Above Trend Growth from 25% to 10% and Sub Trend Growth from 45% to 40%. We now see Recession and Sub Trend Growth as equally likely.
The threat of increasing trade tensions and tariffs is playing out, and governments appear unwilling or unable to provide fiscal stimulus, leaving the central banks to keep a potential recession at bay. Investors should not be surprised by how low rates can go or how creative monetary policy can be.
Our strategy bias is to become more defensive, and we have turned cautious on credit.
Among our best ideas: U.S. government bonds with 10- and 30-year maturities, short- and intermediate-maturity investment grade corporate bonds and selected areas within securitized markets.
Scenario probabilities (%)
Performance & Yields
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Investments in bonds and other debt securities will change in value based on changes in interest rates. If rates rise, the value of these investments generally drops. Securities with greater interest rate sensitivity and longer maturities tend to produce higher yields, but are subject to greater fluctuations in value. Usually, the changes in the value of fixed income securities will not affect cash income generated, but may affect the value of your investment. Credit risk is the risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Such default could result in losses to an investment in your portfolio.
The views contained herein are not to be taken as an advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance.
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