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Fixed Income: Defence or Offence?

  • ,  Head of Research |
  • 15 Apr 2022
  • Updated 14 Apr 2022

Portfolio Positioning, the Muni Market, and Expected Returns Optimisation

Whilst there are many uncertainties in the fixed income market at present, the Fed’s recent words and actions have brought an element of clarity, albeit disruptive. How to react is another thing. One approach is to hold allocations firm, stick to the core, and set up for defence. Or do you go on the offence and flex your strategy, look further along the risk spectrum and accept the elevated duration and liquidity risk in exchange for a boost to expected return? Our selection of papers will help – it includes macro views, in-depth analysis on the muni market, and updated asset allocation insights.

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Expected Municipal Bond Returns: A study (Dimensional Fund Advisors, Apr 2022)

The authors aim to show that details contained within municipal bond yields can be used to optimise expected returns in municipal bonds. They conclude that a well-designed systematic strategy would have outperformed the general market over the last 15 years.

Fixed Income Views: The reckoning (Franklin Templeton Investments, Apr 2022)

For compliance reasons, this paper is only accessible in the EMEA region

Franklin Templeton provides a detailed macro and asset specific view on the economy and the fixed income market. They focus on the U.S., then look at Europe, before laying out their 6-12 month outlook for individual fixed income sectors, starting with U.S. Treasuries.

Systematic Fixed Income Outlook (BlackRock, 2022)

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

The geopolitical crisis in Ukraine creates a stagflationary shock for global economies. Higher goods and services costs may hurt consumer confidence and create a drag on economic growth. The plan to fight inflation just got far more complicated for global central banks.

Senior Loans: An introduction (SSGA | SPDR, 2022)

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

To maintain income levels against inflation, SSGA suggests that an allocation to senior secured loans may be worth considering. They reason that yields compare favourably to high yield bonds, only with a reduced duration risk thanks to floating rate coupons.

How Does Gold Respond When U.S. Spreads Widen? (World Gold Council, Mar 2022)

For compliance reasons, this paper is only accessible in certain geographies

Credit spreads can provide a good indication of market sentiment and risk tolerance. Whilst it may be intuitive to expect gold to perform well on spread widening, this article shows that the relationship is not always so straightforward, with the source of risk being key.

Rethinking Fixed Income Allocations (T. Rowe Price, 2022)

For compliance reasons, this paper is only accessible in certain geographies

With many fixed income alternatives now available, T. Rowe Price advances that core bonds still have an important part to play in any portfolio allocation, and that investors should look to risk-budget along a fixed income continuum based on their individual requirements.

Defensive Positioning in Fixed Income (PineBridge Investments, Apr 2022)

PineBridge Investments provides an update on their U.S. macro view and individual outlooks on leveraged finance, IG credit, EM debt, and securitised products. Their allocations have not changed, persisting with a defensive approach against various uncertainties.

View of the U.S. Municipal Bond Market (New York Life Investments, Mar 2022)

An extensive report covering the U.S. municipal market. It opens with five muni market insights before providing a monthly update incorporating principal metrics and a review of market performance. Finally, the report profiles specific regions and states.


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