360° – Fixed Income Report, Q4 2018

Being a perma-bear is a little like a football coach selecting proven yet underperforming players and tactics in a season of poor results: changing course is difficult once you’ve invested a lot in a team roster and strategy, even though most enthusiasts understand that the game has moved on. But there is a key difference: the perma-bears know that the longer they are wrong, the more likely they are to be correct tomorrow. We should therefore not ignore perma-bears, while also trying to avoid the trap of being wrong for the wrong reasons.

That said, my core views on the current state of fixed-income markets include:

1. The cycle is clearly closer to the end than the beginning
2. It’s not different and it won’t be different this time
3. There have been significant re-pricings in credit markets already, but the major correction is still some way off
4. I am sympathetic to the view that tail risks are hugely underestimated

In 360°, the Hermes Fixed Income teams provide their quarterly assessments of risks and opportunities across the credit spectrum.