The credit team at RBS has gone out on a limb and advised clients to “sell everything”. In a note to clients it advised only to keep high quality bonds. “This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” RBS said global trade and total private sector credit are contracting and global debt ratios have reached record highs. It believes equities and corporate debt “have become very dangerous” and conditions are reminiscent of 2008.
RBS forecasts German 10 year bond yields will fall in time to an all-time low of 0.16% and may even go negative. The ECB official rate will fall to -0.7% and US Treasury bonds will fall to exceptionally low levels. The investment bank also says the tightening cycle by the Fed and the Bank of England is already over and the next action by the Fed will be a rate cut, despite the Fed raising its official rate only recently.