Over the last year, 10-year German bund (bonds) yields have gradually declined along with investor sentiment as the US/China trade war dispute continued, however that could change in 2020.
Policymakers failed to adequately address the consequences from these events and German bund yields reflected those lingering effects of the risk-off overhang.
Jack P McIntyre, portfolio manager at Legg Mason affiliate Brandywine Global, said information risk is starting to dissipate a year later, which could improve the odds for a positive fat tail risk event in 2020.
“We think there are six factors that complement each other to potentially produce a surprise to the upside over the next year,” McIntyre said.
Those six areas are the US/China trade war, US Federal Reserve policy, global monetary policy, fiscal stimulus, global consumer optimism and Brexit.
“These six areas have the opportunity to create some positive catalysts in 2020, either in standalone scenarios or in complement to each other,” McIntyre said.
“We'll be watching the 10-year bund yield closely because any inflection could suggest that the idea for a positive surprise to the upside may be gaining traction with investors.
“The recent backup in yields could be an early sign of that upside surprise.”
10-year German Bund yield as of 31 October 2019