but if we get the folks at goldman sachs adding a rate hike to their fed outlook for 2023 because of the ppa because of the commentary what are you doing this morning well this morning were looking at this we still think that interest rates will peak at a higher level than 5 percent its going to be very data dependent and so will the fed and we will be looking at the next fed minutes well be looking at the economic activity indicators and the next jobs numbers we dont want to be victim to changes in sentiment so we are positioned in a way in a neutral way with some specific ibex in financial markets in equities and in fixed income frederick good morning to you yeah i mean bulletin and master have reawakened the reality that the fed is far from done i mean cupid might have indicated theres a risk of ogre tightening in the uk but with the fed lets extrapolate further do you believe or are you a believer its a waste of money to put money in the very short and sweet spot of the yield curve given that you can get the highest yields for six month paper is since the 2007 era do you think that you should allocate more to the short and the sweet spot on the curve is that a defensive trade for rbc wealth or is it a waste of money look we think were closer to the end of the cycle than to the beginning of this cycle when exactly is the end that is that is a question we dont have an answer to so for now we prefer to allocate to quality we have a position in bonds in the highest possible credit quality and pair that with position positions in emerging markets and in contention convertible bonds this gives us a barber approach which we think will serve us well throughout the year we dont mistake very short term bets which can potentially go wrong i mean blackrock would tend to agree with you their president said at an event that basically were going through a generational change the bond market today you can be 100 percent in bonds and get that 7 percent return its a lifetime shift with that in mind for the week what is the major risk to this trade why do we need to be careful about well a hard lending recession interest rates having to go up because inflation is even stickier than worst fears that is why he wants to be in the highest quality possible credit in that situation spreads would widen and so therefore we wanted to be covered by that to government position positions in government bonds and in high quality credits and that allocation to credit and to govern i mean spreads perform exceptionally well on credit in high yield and investment grade since the start of the year im curious to what extent you bifurcating between europe and the us on your credit allocation given that europe has avoided perhaps the worst case scenario due to a mild winter and lower energy costs we have positions in both both europe and the us certainly a quantitative tightening has been helping in a way the european market but there are opportunities elsewhere as well do you think that with the hawkish tilt in the commentary from some of the fed officials and what were seeing with the idea does that give the greenback the bloomberg dollar index another lift than potentially fresh swings just when everybody started to predict the imminent gloom and doom for the dollar so the dollar has strengthened again here we think we might be closer to the end of the bull cycle for the dollar but given how quickly the dollar has weakened last year it could be that this strength in the dollar lasts for a number of months having said that a lot of the factors which were behind the dollar bull market are starting to reverse if you think of budget constraints if you think of terms of trades as us consumers change from buying cheap imported goods to spending on more expensive services foreign holidays and the like all of these factors mean that there could be a downturn coming up in particular interest rates differential were talking about higher rates in the us but other central banks have kotok an interest rate differential is likely to be less of a driver for the us dollar than it has in the past frederick this week ive seen a couple of exceptional pieces of commentary one is from cac jp morgan talking about the risk or the potential for a vault mcgavin huge option trades being built up and then weve got this cracking story that 50 cent the person behind the trades from a few years ago making millions on an eruption of volatility theres a huge trade has gone through on vault vix heading 50 were trading at 20 at the moment what could trigger an implosion in markets which could cause an eruption involved and var could it be the bank of japan suddenly the bank of japan and a change in monetary policy that could be an important factor because of the yield curve control policy a lot of liquidity has been in the market over the last many years if this starts to be taken away it could mean a lower liquidity environment so that is ones to watch we would watch also sentiment markets look a little bit overbought at the moment a little bit too much optimism again this can swing quite easily we think that having volatility strategies in portfolios ise is an interesting wolf we certainly have increased our allocations to that these strategies can benefit regardless of what is the markets direction and so long as kind profiles warranted or allow it we think its an important position to have