Peripheral European government bonds remain attractive despite volatility
Central banks double down to fight inflation
It has been a tumultuous week for global fixed income markets, after major central banks hiked rates sharply to combat inflation. After stronger than expected US inflation data, the Federal Reserve hiked rates by 0.75% and the market is expecting rates to end the year at around 3.25-3.5%.
The key risk is that steep hikes will lead to a repeat of the 2018 global sell-off of risky assets and an economic slowdown, as demonstrated by the noticeable tightening of financial conditions in recent weeks. The US 10-year Treasury yield, an economic bellwether, touched 3.5% before the last Fed meeting, raising the risks of a Fed-induced recession.