Navigating 2023 With Seven Charts and a Cat

Investors had a vexing time last year. Rampant inflation was met by central banks racing to hike official interest rates, trashing returns on almost every asset class with the exceptions of gold and other commodities. The key for financial markets in the coming year will be whether policy makers can engineer a soft landing for the global economy, or whether recession becomes endemic. Given how badly the guardians of monetary stability misjudged the post-pandemic environment, we’re skeptical of their ability to concoct a Goldilocks economy. Too much tightening risks serving up cold economic porridge as growth becomes moribund.

Since the 1980's, debt yields have been steadily declining. That multi-decade downtrend has clearly been broken, with the average 10-year yield across G-7 bond markets more than doubling last year from the past decade’s mean of 1.3%. At current levels, borrowing costs in the debt market are in line with their 20-year average. Your guess is as bad as ours as to what happens next in fixed income.