Investment - Articles - Fact or fiction? A fixed income outlook

 Please see below for the latest Fixed Income outlook from Nick Gartside, International CIO for Fixed Income at J.P. Morgan Asset Management:

 "Investment meetings everywhere are focusing on tapering: will they, won't they? How much? What frequency? Mortgages or treasuries? The reality is we don't know, but come September 18th the facts will become clear. With clear facts, markets will have certainty and can price outcomes accordingly.

 "So what facts do we now know? Well, one of the lessons over the last few months has been that ‘decoupling' remains an illusion and that quantitative easing (QE) has, if anything, increased financial interdependencies. For many emerging markets it has been the ‘wrong' kind of interdependency. A clear impact of QE has been the indiscriminate allocation of cash to anything offering a yield irrespective of the credit worthiness of the underlying borrower. The withdrawal of QE and liquidity is already forcing investors to focus once again on fundamentals and facts.

 "What does this mean for markets? Well, big directional moves are unlikely given the still tepid growth outlook. Although the current 2% growth rate looks ok, it is a low level historically. For example, the average from 1953 to 2007 was 3.25% and in the four years after each post war recession the average increased to 4.25%. So where will returns come from? The reality is that it's an environment where investors will have to focus on idiosyncratic and relative value opportunities. Emerging markets, the focus of the current dislocation, is probably a good place to start hunting."