Schroders Shifts Scenarios, Upgrades US Duration Bets

The Schroders Global Fixed Income team has updated their scenarios for US Fed funds rates, increasing the likelihood of 'Just right' from 40% to 60%. This is due to sequentially softer inflation data reducing the probability of a September rate hike.

The team believes that market pricing continues to be more hawkish than their own view, and therefore maintains an overweight score to global duration. They also upgrade the US to positive as there appears to be less scope for underperformance in the country's bonds.

In terms of geographical preferences, Canadian bonds have joined their US neighbours in being upgraded by the team. This is due to the stabilisation of the Canadian labour market and inconsistent core inflation outlook that does not justify policy change by the Bank of Canada (BoC).