It will be difficult to avoid a global recession in 2023, and the recent surge in global bond yields is already reflecting the market’s expectation of a significant economic downturn next year. The good news for investors, however, is that all types of bonds – government and corporate, high- and low-quality – are now looking attractive.
This is the view of Jim Leaviss, chief investment officer at M&G Investments in London, who spoke at an M&G presentation in Pretoria recently. Leaviss, who has been called “the UK’s best-known bond investor” and is responsible for overseeing some £141 billion in assets under management, said a recession was “very likely”, with central banks’ aggressive interest rate hikes already having had a dramatic impact on global growth. He noted that almost every US recession since the 1970s had been preceded by a sharp spike in the oil price, which had resulted in a familiar pattern of broader rising inflation, steep interest rate hikes to suppress price pressures, and subsequent contractions in economic activity.
However, he said that this recession might not be as deep as previous downturns. One reason was that the global economy was now less energy-intensive than in the past; another was that governments were keen to use spending to boost their economies, even as central banks were tightening monetary policy, which hadn’t been the case for decades. The US, in particular, was likely to emerge in better condition than Europe and the UK due to its stronger underlying growth, more flexible economy and resilient labour market, among other factors.
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