RBC BlueBay AM: Fixed income indices likely to perform better than cash in 2024

January 5, 2024

Mark Dowding, BlueBay CIO at RBC BlueBay Asset Management comments on the economic outlook for the US, UK, Eurozone, and Japan:

US policy outlook:
'We think that the US economy will slow into the second half of the year, as past policy tightening continues to have an effect. However, our firm thinks this is consistent with two rate cuts by the Fed in the second half of 2024, which is materially less than the 125bps of easing, which is currently discounted.'

UK yields:
'There is probably more scope for UK yields to rise than their US counterparts. Although the UK economy looks materially weaker than is the case across the Atlantic, inflation continues to remain materially higher, and RBC BlueBay suspects UK core CPI will remain around 5% in the months ahead.'

Eurozone rate cuts:
'With core CPI still seen around 3.4%, this remains well above target and although the Eurozone economy has been struggling over the past few months, recent indicators in areas such as house prices suggest some stabilisation. Labour market data also continue to hold up relatively well and from this point of view, we do not sense any urgency to begin a rate-cutting discussion from Lagarde or her peers.'

Bank of Japan:
'The Japanese economic outlook remains relatively upbeat, core inflation remains close to 4% and there is building evidence of an upturn in wage growth. Recent BoJ comments suggest that policy normalisation is likely to proceed over the next several months and we continue to think that there is scope for an end to the Negative Interest Rate Policy (NIRP), which will be forthcoming at the BoJ policy meeting at the end of January.'

Bonds outlook:
'Given markets are already discounting around 125bps of rate cuts during the coming year, there is a lot of good news for government bonds already embedded in prices. With yield curves inverted, this leads us to doubt that fixed income indices will deliver returns much better than cash in the coming 12 months.'