The future of fixed income is anything but fixed
From recession to recovery, and whether you’re investing for income or growth, fixed income is a vital part of a diversified portfolio. But today’s unprecedented investment landscape reminds us that the future of fixed income is anything but fixed.
With the recovery from the pandemic well underway, we believe defaults have peaked in credit markets, while even some of the most Covid-impacted credits have been able to access capital markets. The path looks clear for further spread tightening.
While there are risks that investors should be aware of, emerging market debt continues to present attractive opportunities.
Our pro-growth outlook favours risk assets. While current spreads across fixed income sectors don’t offer obvious value, we see opportunities to collect carry in higher yielding parts of the market.
The move higher in rates gathered momentum at the end of February, surprising the market and causing us to contemplate how much central banks will tolerate before taking action.
The move higher in rates gathered momentum at the end of February, surprising the market and causing us to contemplate how much central banks will tolerate before taking action.
Investment grade credit valuations have come a long way over the past 10 months. At the headline level, we are cautious, but we still see pockets of value.
Investment grade credit valuations have come a long way over the past 10 months. At the headline level, we are cautious, but we still see pockets of value.
Investment grade credit valuations have come a long way over the past 10 months. At the headline level, we are cautious, but we still see pockets of value.
Investment grade credit valuations have come a long way over the past 10 months. At the headline level, we are cautious, but we still see pockets of value.
As we take stock of the first few weeks of 2021, we note that some trades haven’t played out as expected. Risk assets have stalled somewhat as they look for a catalyst to take them another leg higher.
Higher inflation looks set to be on the cards in the coming months. While the risk of a taper tantrum-like scenario can't be discounted entirely, we see a gradual rise in yields as the more likely outcome.
While higher US growth expectations may provide a short-term boost to the dollar against some currencies, the US currency’s fundamentals remain challenging longer term.
After unprecedented global stimulus stabilized economies, what’s next? Many challenges. Still, Above Trend Growth remains our base case at a reduced 60% probability. Our preferences: higher beta U.S. corporates and munis; some local emerging market debt.
Above Trend Growth is our base case (90%) given stimulus, accelerating vaccinations and likely strong growth. Our top picks: high yield bonds and leveraged loans for returns; European bank capital notes, securitized credit and emerging sovereign debt.
In our view, emerging market growth, led by China, could reach 6.7% in 2021. A backdrop of easy global monetary policy further supports the case for emerging market assets broadly, with risks to the upside.
After unprecedented global stimulus stabilized economies, what’s next? Many challenges. Still, Above Trend Growth remains our base case at a reduced 60% probability. Our preferences: higher beta U.S. corporates and munis; some local emerging market debt.
Our updated base case view, to which we assign a 60% probability, looks for global growth to bottom out and gradually transition to a shallow recovery. We see only a moderate risk of inflation, as activity and commodity prices remain low. In this core scenario, we expect central banks to remain accommodative, which we think will support emerging market assets.
Our base case scenario remains a “gradual normalisation,” where the global economy slowly exits recession into 2021. China, which is ahead of the rest of the world in this cycle, continues to lead the recovery.
Whether you’re investing for income or seeking diversification and volatility management in a growth portfolio, we have fixed income solutions to help you achieve your goals.
The value of investments may go down as well as up and investors may not get back the full amount invested.
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