BN BNDX Vanguard Total International Bond ETF Loading... : Bullish and Bearish Analyst Opinions

Like European fixed income.

The author believes the market is over-pricing future interest rate hikes in Europe and the UK, suggesting a contrarian trade where those hikes fail to materialize, which would be bullish for bond prices.

"We think it's more of a buy outside the U.S. We like Europe, core Europe. The idea of two hikes priced in this year is not appropriate." The market is pricing in rate hikes for the ECB due to the inflationary impact of the energy shock. However, central banks typically look through supply shocks. The severe hit to European economic growth from triple-digit oil prices will ultimately force the ECB to cut rates, not hike them, driving bond yields lower. LONG European sovereign bonds as the market is incorrectly pricing in ECB rate hikes during a growth-destroying energy shock. If the energy shock causes persistent stagflation and the ECB rigidly prioritizes its inflation mandate over economic growth, they may actually hike rates, hurting bond prices.

The author expects Rest of World (ROW) bonds to outperform US Treasuries (UST) on a long-term basis, citing the relative unattractiveness of a US-based 60/40 portfolio.