Fixed Income and Credit Market Outlook — Nov 2020

Georgia On My Mind?

The likelihood of a Biden presidency coupled with a Republican-controlled Senate may provide fixed income investors with the degree of political stability (the ''Goldilocks'' outcome) that some may have hoped for ahead of the U.S. election, but were uncertain of obtaining. All eyes will now be on the two run-off seats in Georgia, as these will decide the balance of power in the Senate.

Last week’s positive COVID-19 vaccine related news has seen the U.S. yield curve steepen, with a brighter economic growth outlook likely to lead to higher inflation expectations, something the Fed’s new average inflation targeting framework will allow. The Fed’s focus on keeping short rates low, while allowing longer rates to drift higher, seems the most likely scenario for bond markets at least in the short-term. Opinions are divided, so check out what commentators have to say in this latest collection of fixed income and credit market outlook papers.

Fixed Income Outlook Q4 (LGIM, Nov 2020)

For compliance reasons, this paper is not accessible in the United States & Canada

In this fixed income outlook paper, LGIM experts offer their views on a range of topics including the prospects for inflation, investment-grade credit, global high yield and how climate change considerations need to be integrated into any fixed income strategies.

Fixed Income: Multi-sector asset allocation Q4 outlook (Invesco, Nov 2020)

For compliance reasons, this paper is only accessible in selected countries

Invesco strategists have upgraded growth expectations for Europe and the US, saying this is something that will continue in 2021. As a result, they expect yield curves to steepen and inflation to move towards 2% over time.

The Case for CLOs (Janus Henderson, 2020)

For compliance reasons, this paper is only accessible in the United States & Canada

Janus Henderson makes the case for allocating to fixed income instruments as part of a diversified investment portfolio. In their view, CLOs offer an attractive combination of lower volatility, higher credit quality and less sensitivity to interest rate rises.

Collateralized Loan Obligations: Opportunity amid uncertainty (Nuveen, Oct 2020)

Nuveen believes that CLOs are well positioned to weather future bouts of volatility, given the degree of resilience they have shown in previous periods of market uncertainty.

US Elections and their Impact on Fixed Income Markets (NN IP, Oct 2020)

NN IP investigates the implications for fixed income assets, currencies and interest rates following the U.S. elections.

Fixed Income: ‘Goldilocks’ scenario? (PineBridge Investments, Nov 2020)

PineBridge Investments thinks that a Biden presidency and a Republican-controlled Senate may prove rewarding for investors, with a gradual return to a more normal economic environment, though possibly at a slower pace than previously expected.

Fixed Income Quarterly Report, Q4 (Federated Hermes, Nov 2020)

For compliance reasons, this paper is only accessible in selected countries

Andrew ‘Jacko’ Jackson, Federated Hermes Head of Fixed Income and his team of experts, share their views on the prospects and opportunities that exist across the asset class.

Fixed Income Perspective (Janus Henderson, Oct 2020)

In this paper, Janus Henderson experts discuss a number of topics including the prospects for inflation, Fed policies and their impact on the US economy, and the potential ‘Japanification’ of US corporates under such policies.

Inflation Insights and Active Management? (Wellington Management, Oct 2020)

Adam Berger, CFA, Multi-Asset Strategist at Wellington updates his thinking on inflation and how that might affect asset allocation going forward.

China Fixed Income: Low correlation – Why and for how long? (UBS AM, Oct 2020)

Hayden Briscoe, Head of Fixed Income (Asia Pacific) at UBS AM, explains why a low correlation exists between China’s onshore bond markets and overseas bond markets, and why he expects this to persist for an extended period.

Asian High Yield: Consider this compelling market (PineBridge Investments, Nov 2020)

PineBridge Investments’ Arthur Lau, CFA, investigates the relative attractiveness of Asian bond markets and offers five key reasons for why investors should consider this globally attractive asset class.

Headwinds Ahead but “Goldilocks” Global Backdrop Supports EM (Invesco, Nov 2020)

For compliance reasons, this paper is only accessible in selected countries

Invesco notes that a number of EM economies are well on the path to recovery, and although significant headwinds exist, this potentially bodes well for EM debt investors.

High Yield Investing in the Nordics (First Sentier, 2020)

First Sentier surveys a number of Nordic institutional investors about their perceptions and attitudes towards high yield investing. They find that it plays a significant role in most institutional portfolios, and that most use active managers rather than allocate to passives or ETFs. They also find (unsurprisingly) that ESG is becoming an increasingly important consideration.

How Covid-19 is Affecting U.S. High Yield Energy Firms (NN IP, Oct 2020)

NN IP takes a deep dive into the US high yield energy sector. Whilst they find that the industry faces significant headwinds and challenges, they believe that a number of bright spots persist and can be exploited.

High Yield: Stimulus fuels the march of the zombies (Aviva Investors, Oct 2020)

For compliance reasons, this paper is only accessible in selected countries

Aviva Investors looks at the growing issue of “zombie companies” and wonders how great an issue it might become in an era of persistently low interest rates and corporate debt market support from central banks.

Why High Yield Doesn’t Have to Mean High Risk (PineBridge Investments, Oct 2020)

PineBridge Investments suggests that high yield credit spreads are still attractive and can provide market opportunities for those willing to look beyond the headlines and take a deeper dive into the sector’s murkier waters

High Yield Investing Myths to Rethink in the Covid Era (PineBridge Investments, Nov 2020)

John Yovanovic, CFA, Head of High Yield Portfolio Management at PineBridge Investments, unpacks four recurring myths about the high yield segment to help separate fact from fiction, which should give investors a critical perspective when assessing opportunities across the asset class.

Bonds Have Style: A new model for capturing bond risk premia (Qontigo, 2020)

Qontigo highlights research undertaken into style factor returns and how specific style factors impact on performance across bond markets. They provide a framework for capturing some of those risk premia returns.

Rethinking Risk Parity and Diversification Benefits of Bonds (Eaton Vance, 2020)

For compliance reasons, this paper is not accessible in the United States & Canada

Brian Shaw, Portfolio Manager at Eaton Vance, explains how the role of bonds as portfolio diversification tools must change, given that interest rates are likely to remain “lower for longer” and are, or close to, lower bounds.

Sustainability in Credit: More than just ESG scores (Aviva Investors, 2020)

For compliance reasons, this paper is only accessible in selected countries

Aviva Investors argues that the only way to obtain a holistic view of a company is by combining credit analysis with ESG data and risk impact assessment analysis.

ABOUT THE AUTHOR

Andrew Perrins is a former Actuary and Asset Allocator. After qualifying as an Actuary, he worked for 15 years in investment management, serving as Director of Asset Allocation for Abbey Life and for Chase Manhattan, before setting out on a more entrepreneurial path.

To contact him, email andrew.perrins@savvyinvestor.net