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Fixed Income Outlook: June 2021

Jay Powell and the Fed on the High Wire

U.S. bond markets, initially unnerved by the more hawkish tones and the 'dot plot' graph from the recent FOMC meeting which predicted earlier U.S. interest rate rises, appeared to be reassured by dovish noises made about inflation in the prepared remarks to Congress.

However, the Federal Reserve needs to tread carefully. Too hawkish and a run-up in yields might occur. Appear too dovish on 'transitory' inflation, and the market may think the Fed has lost control and with it, its credibility. Several of the papers selected by Savvy Investor explore the prospects for the timing of Fed policy shifts; be that in the timing of a reduction in its asset purchase programme, or when the first hike in rates might be expected.

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Fixed Income Outlook: Inflation hyperventilation (Robeco, Jun 2021)

Robeco leans away from the market’s consensual view, arguing that some of the basic tenets of that view may have shaky foundations. They also suggest there are plenty of potential pitfalls to negotiate for the fixed income market over the coming quarter.

Credit's Next Chapter (BlackRock, Jun 2021)

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

BlackRock sees the pandemic – and the policy response to it – driving credit markets to create more options for companies seeking capital, and low rates forcing investors to seek higher yields. They also see a need for discipline amid elevated leverage levels, diverging prospects across industries and a potential uptick in inflation and interest rates.

Fixed Income Quarterly Report Q2 2021 (Federated Hermes)

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

Federated Hermes’ Andrew ‘Jacko’ Jackson, Head of Fixed Income, and his team discuss areas of the fixed income market they believe may offer investors the opportunity for superior risk-adjusted returns.

Effective Bond Portfolio Construction as an Alpha Source (Aviva Investors, 2021)

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

Aviva Investors argues that effective portfolio construction could be a reliable and inexpensive source of alpha for credit managers in both bull and bear markets.

Approaches to Monitoring Credit Risk (Dimensional Fund Advisors, 2020)

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

In this research piece, Dimensional Fund Advisors argues that credit spreads on bonds relative to peers may contain reliable conclusions about future bond performance.

The Eurozone Enters the Expansion Phase Alongside the U.S. (Candriam, Jun 2021)

Candriam notes that the Eurozone has now entered an expansionary phase, and consequently favours European Investment Grade (IG) bonds and convertibles over U.S. equivalents, feeling that prices fully reflect balance sheet recovery.

Global Fixed Income Markets – Summer 2021 (RBC GAM)

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

The team from RBC GAM offers their insights on the future direction of interest rates and fixed income markets, while expecting inflation to peak over the next quarter.

Fixed Income Asset Allocation Insights (PineBridge Investments, Jun 2021)

PineBridge Investments continues to see reward in risk-taking in fixed income markets, though clouds – in the form of Fed taper, higher inflation and increasing amounts of issuance – are beginning to build.

Asia High Yield Outlook (Loomis Sayles, Jun 2021)

Loomis Sayles explores the outlook for Asian high yield debt given the region’s strong recovery from the Covid-19 pandemic.

Bond Bites: Fixed income views – Jun 2021 (UBS AM)

Head of Fixed Income UK Jonathan Gregory and his team remain positive on the outlook for H2 of 2021, they also remain cognisant of several key risks that could derail this perspective.

Higher-Yielding Fixed Income: Closer to the endgame (Capital Group, May 2021)

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

Capital Group’s paper suggests ways in which UK defined benefit (DB) schemes can reposition fixed income portfolios to meet their obligations, while also improving funding yields.

Fearful of Rising Yields? No Cushion From Tightening Spreads (Qontigo, Jun 2021)

Qontigo’s paper argues that corporate bonds are perhaps more vulnerable to rising long-term rates now than when the pandemic struck, as the correlation between rates and spreads has narrowed significantly.

EM Local Markets May Not React to Fed's Taper (PGIM Fixed Income, Jun 2021)

In this paper PGIM Fixed Income outline reasons for thinking that emerging market (EM) local rate bonds may not react in the same negative way as they did to the Fed-induced ‘Taper tantrum’ of 2013.

Insurers’ Portfolios: Beyond the traditional investment universe (Amundi, 2021)

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

Amundi’s paper argues that European insurers’ need for yield and diversification in fixed income portfolios merits strategies which incorporate assets outside the norm of euro investment grade (IG) bonds.

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