The oil curve is in backwardation; in 2022, the 2-year US inflation swap rate moved to 5%, but now it's at 3%. The market still expects the Strait to reopen, so short-term inflation rates may not have priced in the worst case. If the Strait remains closed through end of May, severe disruption and demand destruction could follow, pushing the economy into negative territory, especially in Europe.

At the short end of the curve, a lot is already priced in: 50bp hikes expected by ECB and BOE, and the Fed moving from cuts to a slight risk of a hike. Staying short duration is a way to protect against volatility.

If the Strait remains closed by June, central banks may feel compelled to do an 'insurance hike' to prevent second-round effects from energy prices feeding into the broader economy. Currently, inflation is energy-price driven, not broad-based, but the risk is real.

Non-farm payrolls in the US were strong, but core wage growth is still contained.

UK politics has a massive impact on the market; the 10-year term premium in the UK is the highest among major bond markets at around 2%, driven by political uncertainty. We want to stay underweight duration on gilts.

The absolute yield level (almost 5% on 10-year) might look attractive, but the political premium makes it unforecastable and risky.

We are underweight fixed income overall and overweight investment grade corporate bonds. In a multi-asset portfolio, we prefer equities (neutral). The AI trade has not put pressure on credit spreads despite heavy issuance from hyperscalers.

Alphabet issuing debt internationally is a diversification move, not a sign of congestion in US credit markets.