U.S. Treasuries and bond-related ETFs strengthened toward the end of 2018 as investors looked to a safe haven to stabilize their investment portfolios, and this bond segment may continue to offer security if volatile spikes again this year.
“Uncertainty around key events is likely to stoke volatility, arguing for greater portfolio resilience in 2019. We prefer a barbell approach: exposures to government debt as a portfolio buffer on one side and allocations to assets offering attractive risk/return prospects such as quality and EM stocks on the other,” BlackRock Strategists, led by Richard Turnill, said in a research note.
In the current market environment, many anticipate the Federal Reserve to step back from its tightening monetary policy. The policymakers’ median rate expectations for 2019 dipped to two interest rate hikes from three in response to the latest “dot plot” projections due to a softer growth and inflation outlook.
After the recent pullback, asset valuations cheapened significantly over 2018, with equity valuations hovering back around post-crisis averages.
“We enter 2019 with less-demanding valuations and risks better reflected in many asset prices. Yet fears over an economic slowdown and trade conflicts loom large,” the BlackRock strategists said.