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Fixed Income Outlook: May 2021

When will the Fed blink?

Recent U.S. inflation data and the release of the latest Fed minutes, which indicated a case of 'taper jitters', has some market commentators revisiting their timing of Fed moves. A divergence in views is appearing, with one camp favouring the idea that the Fed will tough it out with the 'inflation is transitory' argument, and the other somewhat unsettled by strong upward momentum in manufacturing and consumer data.

Several of the papers selected expand on the potential timing of Fed moves and their likely implications for bond markets. Other papers look within the asset class for potential investment opportunities in areas like emerging market debt, high yield, and muni bonds. An interesting paper from PIIE looks at the potential stranglehold that China could exert on developing debtor nations and how this might affect sovereign debt investors.  

eyes on bank notes

 

Monetary Policy to Be the Most Important Factor This Year (Candriam, May 2021)

Candriam anticipates the Fed will start to pave the way for tapering in H2 2021 as both inflation expectations and the unemployment rate advance towards the Fed’s targets.

Global Fixed Income Strategy (Invesco, Apr 2021)

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

Invesco Fixed Income takes a bullish stance on U.S. economic recovery, anticipating that GDP growth may exceed 7%. Despite this, they expect the Fed to view inflation bumps as just transitory.

Aspects of China's Lending to Emerging Markets (Franklin Templeton, Apr 2021)

Franklin Templeton’s paper discusses the influence China has had on developing nations and how their lending practices and approach to distressed debt has changed sovereign debt investing.

Global Fixed Income Market Outlook (Vanguard, Apr 2021)

Vanguard looks back on what was a tough Q1 for bonds and offers their insights for the rest of the year.

High Yield Debt Can Boost Income and Return Potential (T. Rowe Price, Apr 2021)

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

T. Rowe Price argues high yield bonds have an integral part to play in portfolios, especially when equity returns are likely to be lower in future years.

Fixed Income Perspectives – Apr 2021 (Capital Group)

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

Capital Group’s Fixed Income team offers its perspectives for bond markets, which are based around a central case of the Fed remaining patient before raising rates.

Five Key Themes in Energy Credit (Federated Hermes, Apr 2021)

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

In this paper Federated Hermes reflects on investing in a recovering energy credit sector, noting that scope remains for some Fallen Angels to make it back to investment grade status.

High Yield Bonds in View: Energy (Franklin Templeton, Apr 2021)

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

Franklin Templeton examines the high yield energy market and notes an improving trend, both in refinancing terms and declining spreads. Despite this, they still see scope for further gains.

Podcast: Emerging markets debt (PineBridge Investments, May 2021)

PineBridge Investments discusses their expectations for emerging and developed markets debt in the light of the coronavirus crisis, and the impact of the monetary and fiscal policy stimulus on the markets.

How China Lends: A look into 100 foreign government debt contracts (PIIE, 2021)

PIIE investigates the legal terms China seems to insist on when state-owned enterprises deal with foreign sovereign borrowers. They find that China is a wily lender, with the potential to exercise leverage over policy responses to debt crisis management.

Long View – Inflation (DWS, May 2021)

This report from DWS expounds their longer-term views on inflation and how they have impacted their 10-year asset return forecasts.

Podcast: US IG credit offers investors opportunities (NN IP, May 2021)

In this podcast from NN Investment Partners’ Anil Katarya, he highlights the opportunities that exist in U.S. investment grade credit, which could offer non-U.S. (European) investors a yield pickup of 100bps, even after allowing for currency hedging costs.

Municipal Bonds: Attractive for non-U.S. investors (MFS IM, May 2021)

MFS investment Management explores the attractiveness and opportunities that exist within the U.S. Taxable Municipal Bond market for non-U.S. investors.

ECB Stimulus and Support for Euro Fixed Income Markets (Amundi, May 2021)

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

Amundi's paper examines the recent intervention in the European bond market by the ECB under the PEPP programme and concludes that the ECB will remain a firm supporter of European bond markets until the end of 2021.

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