Fixed income

After a year of over 100 rate cuts around the world in 2019, we felt that 2020 would see major central banks engage wait-and-see mode.

This deal may well perform in the short-term, and we sincerely hope Alpha’s plan works, but we also recognise there is a high degree of execution risk and the domestic economy still has considerable headwinds.

Perfect timing is practically impossible in situations like these, but one way to tackle this risk is to gradually reduce ‘good’ duration by moving to the shorter part of the UST curve, which would be less sensitive to a move higher in yields.

In what was Mark Carney’s last meeting as governor of the Bank, the MPC delivered a mixed message.

Given the material positive performance seen in other parts of the fixed income markets in 2019, the CLO relative value proposition now looks even more attractive.

A rate cut now makes very little sense to us, and wastes one of the few bullets the BoE has left in its armoury. If they do decide to cut next week, we think it will be reversed within 12 months.