The Power of Yield – our 5-year return forecasts

In Kürze

The suffering continues. We warned in this same annual report, a year ago, that investors were "not out of trouble just yet". Long-only investors will remember 2022 as 'annus horribilis', with both stocks and bonds suffering large drawdowns - in bonds to an extent unseen modern times.


  • It looks like the Global Aggregate index will end 2023 below water for a third consecutive year: there has been no bounce back from the historically large drawdown of 2022. Fixed income markets have paid a dear price for successive supply chain disruptions and the adventurous policy mix of the past years, characterised by a massive global policy easing through the pandemic and a sharp divergence between US fiscal and monetary policy over the past 18 months. 
  • The future is always uncertain, but maybe even more so now that the World Order is changing fast: the US hegemony is contested, conflicts and wars have burgeoned, and the security of supply chains now matters as much as their efficiency. All this may change the growth-inflation mix – in a bad way.
  • Even though we raised our estimate of equilibrium rates in the medium term, the now much higher level of yields makes Fixed Income more attractive in terms of 5-year risk-return, especially Cash, Treasuries, and IG Credit (see chart below). We acknowledge that public debt sustainability concerns may justify lower than average credit and equity risk premia (vs. Govies) in the future, but investors will likely not get paid enough for credit and equity risk on a 5-year horizon. For those accepting the risk, returns on EM hard currency debt ranks highest
  • Among a plethora of risks, two stand out. First, yields may stay high(er) for longer on stubborn inflation expectations, lavish central banks or renewed stagflationary shocks (BTPs most exposed). Second, cracks in the financial plumbing, emanating from the higher cost of rolling debt over and large unrealised losses across investor books, could trigger a deeper recession or – worse – an outright financial crisis (risk assets most exposed). On the bright side, a Goldilocks scenario (soft landing, quick disinflation), would be more bullish for Equities and HY Credit

Download the full publication below

The Power of Yield – our 5-year return forecasts.pdf

© Generali Investments, alle Rechte vorbehalten. Diese Website wird von der Generali Investments Holding S.p.A. als Holdinggesellschaft der wichtigsten Vermögensverwaltungsgesellschaften der Generali Gruppe zur Verfügung gestellt, die direkt oder indirekt die Mehrheitsbeteiligung an den unten aufgeführten Gesellschaften hält (im Folgenden gemeinsam "Generali Investments"). Diese Website kann Informationen über die Tätigkeit der folgenden Gesellschaften enthalten: Generali Asset Management S.p.A. Società di gestione del risparmio, Infranity, Sycomore Asset Management, Aperture Investors LLC (einschließlich Aperture Investors UK Ltd), Plenisfer Investments S.p.A. Società di gestione del risparmio, Lumyna Investments Limited, Sosteneo S. p.A. Società di gestione del risparmio, Generali Real Estate S.p.A. Società di gestione del risparmio, Conning* und unter deren Tochtergesellschaften Global Evolution Asset Management A/S - einschließlich Global Evolution USA, LLC und Global Evolution Fund Management Singapore Pte. Ltd - Octagon Credit Investors, LLC, Pearlmark Real Estate, LLC sowie Generali Investments CEE. *Einschließlich Conning, Inc, Conning Asset Management Limited, Conning Asia Pacific Limited, Conning Investment Products, Inc, Goodwin Capital Advisers, Inc. (zusammen "Conning").