Insights

Each month we share the conclusions from the monthly strategy investment committee which provides a summary of Ostrum’s views on the economy, strategy and markets.

While 2023 arguably marked the comeback of bonds, there’s no guarantee this trend will continue in 2024. And as the latest Natixis research points out, uncertainties over growth prospects and inflation levels, and hence over the timing and scale of central bank rate cuts in 2024, are prompting bond investors to exercise caution.

The high level of rate volatility raises two key questions. Firstly, volatility normalised gradually as rate policy took over from quantitative easing. Over a long period, the central banks’ grip on bond markets through asset purchase programmes suspended the usual market mechanism determining asset prices.

Covered bonds are an essential financing instrument for banks in the euro area. ECB monetary tightening affects the covered bond market directly with the unwinding of CBPP3  holdings and indirectly with the TLTRO  repayment (freeing covered bond collateral). Mortgage loans are the main collateral for covered bonds. Housing has been hit by higher rates so that bank lending to households for house purchase shrunk. Covered bond supply should slow reflecting declining lending flows. Covered bond spreads tend to compare favorably to other similarly low-risk asset classes.

In 2023, equity markets experienced a significant shift with the outperformance of Growth and Cyclical segments, driven by factors such as resilient economic activity, decreasing inflation, and expanded valuation multiples due to the surge in sentiment around generative AI.

Since Mr. Simsek’s appointment as Finance Minister in June 2023, Turkey has returned to orthodoxy policy, initiating a rebalancing of its economy. The sentiment towards the country has significantly improved. Fitch has upgraded Turkey’s rating by a notch to “B+” with a positive outlook. The upcoming municipal elections on March 31 will be decisive for Erdogan’s political future and for Turkey’s economic prospects.

Each month we share the conclusions from the monthly strategy investment committee which provides a summary of Ostrum’s views on the economy, strategy and markets. 

While ultra short-term credit shares some of the safety-first characteristics of money markets, it can generate extra yield by widening its universe of issuers. Mainstream credit ratings are focused excessively on financial metrics, so do not reflect all the risks of a given credit. Ostrum Asset Management seeks issuers with ratings that underplay a business’s intrinsic value. ESG integration provides additional downside protection and value enhancement. Ostrum AM’s investment process embeds three ESG components: ESG scoring, a carbon intensity calculation, and an anti-corruption policy.