'Bonds are back' as markets enter a 'new paradigm,' says HSBC Asset Management

cnbc.com:

LONDON — Markets have entered a «new paradigm» as the global order fragments, while heightened recession risk means that «bonds are back,» according to HSBC Asset Management.

In its 2024 investment outlook, seen by CNBC, the British lender's asset management division said that tight monetary and credit conditions have created a «problem of interest» for global economies, increasing the risk of an adverse growth shock next year that markets «may not be fully prepared for.»

HSBC Asset Management expects U.S. inflation to fall to the Federal Reserve's 2% target in late 2024 or in early 2025, with the headline consumer price index figures of other major economies also set to drop to central banks' targets over the course of next year.

The bank's analysts expect the Fed to begin cutting rates in the second quarter of 2024 and to trim by more than the 100 basis points priced in by markets over the remainder of the year. They also anticipate that the European Central Bank will follow the Fed, and that the Bank of England will kickstart a cutting cycle but will lag behind its peers.

«Nevertheless, headwinds are beginning to build. We believe further disinflation is likely to come at the price of rising unemployment, while depleting consumer savings, tighter credit conditions, and weak labour market conditions could point to a possible recession in 2024,» Global Chief Strategist Joseph Little said in the report.

The rapid tightening of monetary policy by central banks over the last two years, Little suggested, is leading global markets towards a «new paradigm» in which interest rates remain at around 3% and bond yields stick around 4%, driven by three major factors.

Firstly, a «multi-polar world» and an «increasingly fragmented