The fixed income investment themes investors need to take note of in Q1

Hardeep  Tawakley
clock
The fixed income investment themes investors need to take note of in Q1

Partner Insight: In this quarter's edition of Bond Compass, State Street Global Advisor's SPDR analyse three key themes that could assist investors in navigating uncertain fixed income waters

#1

Navigating Interest Rate Risk by Focusing on Duration and Quality

Yields fell across developed markets in December as a tumultuous year came to a close. In 2019, support may not be as robust, as central banks either stop expanding their balance sheets (e.g. ECB, BoE) or reduce them (e.g. the Fed). Inflation may not spill over, but it is still alive and, thus, will keep pressure on yields.

Overall, State Street Global Advisors continues to favour a shorter duration bias as normalisation progresses. The short end remains well anchored in Europe, while the long end could be more susceptible to market dynamics where asset purchases would have less of an impact. EUR investment grade spreads widened 65 bps to 1.52% in 2018, but that spread pales in comparison to the 221 bps widening of EUR high yield.1 As a result, the outlook favours moving up in quality. In this period of potential yield increases across the EUR curve, short-dated EUR investment grade corporate (in EUR) also looks favourable.

#2

Could converts lift exhausted bond performance?

In volatile markets, convertible bonds can provide investors a degree of downside buffer while still retaining the ability to participate in an equity rally. Convertible bonds tend to exhibit lower interest rate sensitivity than high yield and investment grade thanks to the implied equity option and a generally shorter maturity issuance. Having the ability to quickly gain exposure to convertible bonds via an ETF could be appealing as the market backdrop remains fluid.

#3

Emerging market debt local currency overtakes developed markets

 

Click here to read this article in full and gain access to State Street Global Advisors SPDR's latest Bond Compass outlook report for Q1 2019

 

1Source: Bloomberg Finance L.P., as of 31 December 2018.

More on Partner Insight

Partner insight: Taking on climate change through fixed income
ESG

Partner insight: Taking on climate change through fixed income

ESG challenges are complicated and diverse for many asset classes, and fixed income is no exception

Invesco
clock 23 May 2022 • 1 min read
Partner insight: Adapting to a changing interest rate environment

Partner insight: Adapting to a changing interest rate environment

2022 has been a turbulent year but in terms of monetary policy, it has also been a fascinating one

Invesco
clock 06 May 2022 • 1 min read
Partner insight: Tackling inflation - the fixed income view

Partner insight: Tackling inflation - the fixed income view

With real yields negative in many markets, where might you find the returns you need?

Invesco
clock 03 May 2022 • 1 min read
Trustpilot