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Fixed Income Outlook: Feb 2021

Is More Inflation on the Cards?

Inflation break-evens have continued to increase over the past month, as has the spread between 2-year and 10-year U.S. Treasuries. Although a rosier outlook has materialised in some markets, are investors jumping the gun in terms of their inflation expectations? 
 
February's troupe of fixed income outlook papers discuss inflation expectations in detail, as well as the outlook for a variety of fixed income sectors. Is there any more room for the risk-on trade in developed market fixed income, or should investors look towards bank loans and high yield? 
inflation expectations

The Twilight Zone: Global fixed income risks and opportunities (MFS, Feb 2021)

As MFS describes, arguments exist on both sides of the risk-on/risk-off debate for fixed income investors. In this environment, generating alpha via security selection and duration becomes increasingly important.

Fixed Income Perspectives (Capital Group, Feb 2021)

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

With 15 pages of charts and commentary, Capital Group reviews the outlook for municipal bonds, EMD, high yield, investment grade corporates, and sovereign bond yields.

Credit: Expanding the fixed income toolkit (T. Rowe Price, Jan 2021)

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

Pension schemes may wish to consider other sectors of the fixed income market, such as EM corporate debt or high yield, in order to alleviate funding or liability-matching concerns.

Income Generator: Navigating a weak US dollar (Wells Fargo AM, Jan 2021)

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

A weaker dollar has a significant impact on fixed income investors. Wells Fargo Asset Management looks at why the dollar could continue to weaken and recommends EM corporate debt or local currency government bonds.

Global Fixed Income Strategy (Invesco, Jan 2021)

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

Invesco partitions its inflation outlook into a near-term and medium-term perspective. The authors state that in the near-term, inflation could spike, but other factors exist which could keep inflation in check over a longer time period.

Technical Analysis Chart Pack: Jan 2021 (MetLife Investment Management)

This chartbook from MetLife Investment Management reveals a technical analysis of economic data, inflation, and fixed income markets. Interestingly, the U.S. Treasury 2s10s curve has spiked recently.

Global Floating-Rate Loan Market Monitor (Eaton Vance, Feb 2021)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Eaton Vance provides a brief primer on floating-rate loans, then delivers a 50-page chartbook reviewing the floating-rate loan market in Q4 2020.

Fixed Income Outlook Q1 2021 (LGIM)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Continued monetary policy support and positive vaccine rollout news have green-lighted risk-on trades in the United States, including within fixed income markets. But have valuations come too far too fast?

The Market Will Test the Fed, and the Fed Will Win (UBS AM, Feb 2021)

UBS Asset Management believes that investors may be underestimating the length of time that monetary stimulus will continue to exist. Although the outlook is currently more positive, the Fed has committed to remaining supportive and to letting inflation run hot if necessary.

Centrally Cleared Repo Market Brief: Q4 2020 update (State Street)

State Street reviews activity within the U.S. repo market over the course of 2020. It was a year beset with extreme oscillations in funding markets.

Fixed Income Q1 2021 Outlook: Inflation risk re-emerges (Neuberger Berman)

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

In this quarterly outlook for fixed income markets, Neuberger Berman focuses in on inflation risk and how inflation could impact fixed income allocations.

Leveraged Finance: HY offers opportunities (PineBridge Investments, Jan 2021)

PineBridge Investments has a positive outlook for the loan market and recommends selective opportunities in high yield credit as well. They also provide other sector-specific views.

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