If we want inflation to go back to 2 per cent, central banks and the governments are going to need to "inflict more pain" on the global economy, Julien Houdain, head of credit – Europe at Schroders, has said.
Speaking to FTAdviser, Houdain noted how certain events have caused sudden shifts in the markets, which is unsettling investors.
Following last Autumn's "mini"-Budget fiasco, the markets were seriously disrupted.
The market experienced further pressure in the first quarter of this year with the collapse of some regional US banks and troubles in the commercial real estate market.
Following the reduction in UK inflation to 8.7 per cent in April from 10.1 per cent in March and slight optimism around economic growth, there was some relief: “Inflationary pressure [was] disappearing [albeit slowly]. That's very simple and it's good for most asset classes [and] very good for fixed income.”
But according to Houdain, the market appears to be moving towards a scenario, particularly in the UK, “which is scaring the market”, where inflation has come down, but will remain high for longer or start going up again.
Despite this, Houdain said investors in fixed income would still benefit from good returns.
He added: “You are getting paid for the volatility knowing that… the repricing of fixed income happened last year with the fastest hikes in the US in history.”
As well as looking at the current market conditions and its impact on fixed income, Houdain also talks about yield movements and the prospects for investors looking for income.
This video is worth 30 minutes of CPD.
ima.jacksonobot@ft.com
This video was recorded on May 25.
