Fixed income – What a comeback
November was one of the best months for global bond markets in history, as weaker US data and dovish Fed-speak cleared the path for easier financial conditions. Bloomberg’s US Aggregate Bond index finished +4.5%, the best month since 1985, while the Euro Aggregate finished +2.7%, its fourth best month since inception in 1998. Following these returns, we believe the outlook into year-end is more balanced. Key drivers in December include NFP this week which consensus expects at 190k versus 150k prior, followed by CPI and the Fed meeting next week.
Eurozone inflation – On track for target
Inflation surprised to the downside in November, as headline fell from 2.9% to 2.4% and core from 4.2% to 3.6%. The fall in inflation was broad-based, whereby the -0.9% monthly drop in service prices was particularly notable. Both prints were 30bp below consensus, and fuelled further rate cut pricing: Markets now expect the first 25bp cut by April, and 115bp in total for 2024 (on par with the Fed). Inflation markets price HICP to fall below target by August 2024, but we believe the ECB can already cut sooner.
Algebris Investments’ Global Credit Team
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