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Central Bank Liquidity and the Repricing of Risk (Part II)
As we began discussing in Part I of this blog entry, the research team at Montaka Global recently explored some of the major dynamics occurring in the fixed income markets, how they may impact stocks and potentially reveal some perspectives on what may lay ahead in 2019. Below is the continuation of that conversation, highlighting some of the key thoughts and observations we explored.
Convergence of Returns Across Asset Classes
Total Return Across Risk and Risk Free Assets (Year-To-Date)
3-Month Treasury Yields Have Converged with Global Corporate Bond Yields
Part of the U.S. Treasury Yield Curve Has Inverted, but the Key Recession Indicator Has Not (i.e. 10s2s Spread)
U.S. Recessions and the Inverting U.S. Treasury Yield Curve (10s2s Spread)
Key Takeaways fromCentral Bank Liquidity and the Repricing of Risk (Part I and II)
These dynamics will likely create an even more challenging backdrop for asset allocation in 2019 than 2018, however weak and over leveraged businesses will be less able to hide behind a highly accommodative credit environment, which may lead to more defaults, expensive capital raising and more natural price discovery, particularly for the Montaka Global short portfolio.
Amit Nath is a Senior Research Analyst with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100.
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