The bond market is focusing on one side of the question—inflation—which is why you saw the repricing. But we think it is important to cut through the noise and see the other side: growth. Growth in the US has been resilient, but we are starting to see erosion in the real income of the low to middle part of the consumer, which will affect growth.

Saving rates in the US are lower than in the past (6% vs 10-11%), and wage growth has been much lower (3% vs 6-5%). When you combine all this, the growth picture starts to be a little bit risky.

In terms of risk reward, the bond market prices more inflation risk but does not price very well the downside risk to growth. We believe the market is pricing potentially too high, and we think it will hold or potentially cut at some point.

With Treasuries at 4.5% and 2-year at 4%, it is quite attractive.

We started the year more underweight in the long end, but given valuations today, we increased duration in the 10-year and the long end. In Japan, we see an inflection point: the Bank of Japan is clearly behind the curve and needs to increase rates once or twice this year.

What you see in the bond market is much more global dispersion. Not all central banks will move in the same direction. You might have a Fed that will cut versus a Bank of Japan and probably ECB that will hike.

We published a fixed income survey where 50% of institutional investors want to keep their allocation to fixed income and 25% want to increase it. Investors want a more global approach, including emerging markets, which is moving from a satellite asset class into a core one.

The equity market is focused on corporate earnings, which have been extremely strong. AI will drive productivity for corporates, and we believe that. Over the next 12 months, you can see the impact on growth, and over the long term, growth in the US might be quite strong.

Productivity is disinflationary. The bond market is almost pricing a 2022 scenario, but we don't think that is the case because the starting point of yields is very different. Over the very long term, we believe growth in the US will be resilient and inflation might go down with AI impacting productivity.

You can see the bond market from two perspectives: the inflation side and the growth side. You can buy bonds as protection for downside risk on growth, which has non-zero probability. And you can still buy bonds over the long term because you think inflation is going down. The case for bonds over the medium and long term is still there.

Volatility will remain extremely high and elevated, and rates will stay higher for longer. But it is an environment where fixed income will do relatively well despite volatility.

TIPS are interesting. You need to separate the breakeven from taking long duration risk. We find more attractive today in the breakeven because the market does not reprice this big inflation environment. Investing in TIPS through just isolated breakeven is an interesting way to protect your portfolio for a potential increase in inflation.

Today, the way we position portfolio in fixed income is not for just one outcome. You buy some duration to protect from growth, and you can buy some breakeven to protect for the tail event where inflation reacts. It is a kind of cheap option today.

The fiscal issue is not just a US one; it is a global problem. The concern on yield is more in Europe and the UK. Europe is more affected by energy prices, which brings the ECB to potentially hike. Also, Germany is going to spend a lot of money on expansion, which will put more pressure on the German Bund in the long end.

We expect more than 100 billion issuance from German Bunds. On relative value, you can see more pressure on the German Bund in the long end than the US Treasury market.