The yield curve will flatten, especially in the United States, predicts abrdn

(AOF) – For Nicholas Kordowski, head of bond research at abrdn, one should not focus excessively on inflation and interest rates or on a particular national market, but rather address all the problems and economies, whether developed or emerging. In his “2022 outlook for bond markets”, the economist plans to maintain his cautious stance on emerging markets.

China is likely to take time to recover from its recent deleveraging purge, he said, and therefore expects its growth to be slower in 2022 than consensus forecasts suggest.

abrdn predicts a favorable environment for the US dollar due to accelerating growth in developed markets (DM), the prospect of a Fed interest rate hike and the explosion of volatility that will support the dollar as a “risk-free” currency.

Combined with further interest rate hikes, these factors mean emerging markets are expected to remain under pressure and continue their recent relative underperformance.

However, the second quarter of 2022 could be a good entry point for additional exposure to emerging markets, given our expectations for yield and interest rates.

“More generally, we still believe that long-term rates will remain at relatively low levels due to the high debt levels in the G10 countries but that, in the face of the strength of the recovery and inflation and less accommodating monetary policies, short rates will have to rise and the yield curve flatten, especially in the United States, “writes Nicholas Kordowski.

“Finally, getting back to inflation, it needs to be put in perspective. The severity of the current inflationary surge is reflected in the term ‘stagflation’ which is coming back into common usage for the first time in nearly 50 years old. But it is equally important to remember that his return was sparked by a supply shock of unprecedented magnitude. Under these circumstances, it is simply too early to say whether the current episode of inflation is simply light and transitory or more serious and lasting .. “, concludes the economist.

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