I favour US Treasuries, which still offer value, particularly at the medium to longer end of the yield curve. Even as the Federal Reserve pulls out I still expect to find buyers to support prices. The UK also looks attractive as interest rate increases look implausible. I would look more to the corporate sector, which offers better value than government debt, keeping a close eye on the credit quality.
Europe would be an area to consider for short exposure. Problems in the European banking sector have flared up again recently in Spain with the collapse of Banco Popular, a reminder that the crisis has not ended. The vulnerability of the banking sector – in Spain and Italy, for example – is an inevitable consequence of years of lending to businesses and consumers in a low growth environment.
