Outlook for Fixed Income Asset Classes - September 2019
On the monetary policy front, the past month has been rather eventful. The US Federal Reserve cut the fed funds rate again by 25bps, as expected, and the European Central Bank announced a rate cut (to -0.50%), a return to quantitative easing, and an expanded TLTRO program.
The ripple effects of these two events have been felt throughout global fixed income markets. The following papers provide some additional clarity on the outlook for fixed income asset classes, credit markets, and monetary policy actions.
Lior Jassur of MFS Investments stresses the importance of security selection in corporate bonds, given the mountain of corporate debt that has been issued in the US and Europe and declining overall credit quality.
For compliance reasons, this paper is only accessible in the United States and Canada
In this Q&A, Eaton Vance's floating-rate loan team examines the current loan market and highlights an interesting opportunity.
Building on a previous Hermes study about ESG performance and credit spreads, this paper attempts to determine is similar relationships exist within the sovereign credit market.
For compliance reasons, this paper is only accessible in certain geographies
In this paper, portfolio manager Robert Neithart shares his thoughts on global themes that are affecting emerging market debt.
The fragmentation of fixed income markets leads to opportunities for total-return, multi-sector fixed income investors. PGIM Fixed Income describes some of these relative value opportunities as well as an approach for building multi-sector portfolios.
Fixed Income Asset Classes and Strategies
Can investors turn to illiquid assets in order to boost returns? The authors discuss the liquidity premium and inaccuracies pertaining to its measurement and how it functions.
Structured finance is a complex field. The authors look at the evolution of European ABS, discussing everything from post-GFC regulatory changes to present day investment opportunities within the asset class.
In this primer, PineBridge explores how collateralized loan obligations (CLOs) work. They present CLOs as robust, opportunity-rich debt instruments and discuss several of their pros and cons.
For compliance reasons, this paper is only accessible in the United States
As a part of its 9th annual US ETF Study, Greenwich Associates interviewed 181 institutional investors on the utility of ETFs for portfolio construction purposes, finding that ETFs are now considered as a primary means of obtaining fixed income exposures within institutional portfolios. Liquidity, ease of use, speed of access, and low management fees are some of the top reasons for using bond ETFs.
Fixed Income Outlook
The authors foresee increased volatility in fixed income markets over the coming quarters and have adapted their asset allocations accordingly.
For compliance reasons, this paper is NOT accessible in the United States
Is a Japanese deflationary environment becoming more likely for certain economies? Living with deflation is possible, although difficult.
Moody's Weekly Credit Market Outlook provides an overview of recent activity in the corporate bond market and recent economic data releases. This week the featured article discusses an increase in corporate borrowing in the month of September.
Pictet Wealth Management examines the ECB's recent stimulus and their forecast for 10-year Bund yields.
Monetary Policy Outlook
For compliance reasons, this paper is only accessible in the UK & Europe
Capital Group reviews recent US monetary policy decisions, including the most recent interest rate cut. But why is it that inflation has remained so low?
Guggenheim reviews their economic model for forthcoming recessions. A tipping point may exist where a recession is unavoidable.
Mellon Capital Chief Economist Vincent Reinhart considers the Fed's likely path for the rest of 2019.
Robeco's monthly report looks at recent policy actions of central banks across the globe, as well as an overview of the macro outlook, inflation, and growth expectations.
Emerging Markets Debt
The importance of positive yield: why Asian fixed income makes sense in the face of rising uncertainty (Manulife IM, Sep 2019)
For compliance reasons, this paper is only accessible in the EMEA region
Are traditional safe haven bonds and other negative yielding assets the only places to turn to in a risk-off environment?
Investing in EM local bonds can incur extra transaction costs, which reduce the amount of alpha generated in excess of local bond indices. This paper discusses the mitigation (or possibly the elimination) of these issues.
For compliance reasons, this paper is only accessible in North America and South America
Many investors may be mistakenly underexposed to emerging-market corporate bonds. The authors explain the importance of EM corporate debt allocations for asset allocators.