Central to Mondrian’s fixed income process is a measure called the Prospective Real Yield (PRY). A market’s PRY is defined as its 10-year government bond yield minus our proprietary inflation forecast for that market and sovereign credit risk. The dispersion of PRYs is currently at a 10-year peak in developed markets, as seen in the chart below. Therefore, we believe it is crucial to take an active approach and be highly selective with country positioning for global bond portfolios. When dispersions are wide it can signal dislocations in the market. We aim to exploit these anomalies.
Using our approach, the most attractively valued markets are currently Mexico, New Zealand, UK, and the US. Mondrian is now significantly overweight these markets, while underweight Japan. We monitor PRYs closely and appropriately position the portfolio as changes occur.
PRY Dispersion
Disclosures
The opinions expressed here are Mondrian’s views based on proprietary research. Past performance is not a guarantee of future results.
Views expressed were current as of the date indicated, are subject to change, and may not reflect current views. All information is subject to change without notice. Views should not be considered a recommendation to buy, hold or sell any investment and should not be relied on as research or advice.
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