Fixed Income Quarterly: “Your overconfidence is your weakness.”

Fixed Income Boutique

Read 2 min

Mar 12 2025

Harnessing alpha opportunities

Whether you’re Luke Skywalker or an investor navigating the markets, making decisions based on a misperception of certainty can be dangerous. Geopolitical and macroeconomic outcomes today are as unpredictable as the twists in the Star Wars saga. But alpha opportunities await risk-aware, active investors who don’t fall to the dark side of overconfidence.

Key takeaways

We remain cautiously optimistic about Fixed Income returns, particularly against other asset classes.
We see growth potential in both Europe and the US. After large shifts in politics around the world, we expect both the European Central Bank (ECB) and the Federal Reserve (FED) to continue to track their stated paths fairly closely. This should have a reasonable likelihood of keeping inflation well bounded.
Corporates continue to deliver strong results and an ability to refinance their debt. Leverage levels and debt maturity walls look historically very positive. European and US global banks have delivered strong results in 2024 and look resilient with improved capital ratios. Emerging market sovereign debt / GDP ratios continue to appear broadly positive.
Credit spreads remain tight and compressed. While opportunities remain, credit market beta does not look attractive by historical standards. Recent spread widening has been short lived.
Geopolitical and US economic uncertainty remain high and is not being priced in by the markets.

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Rates outlook: Tariffs, threats and (trade) wars

As Donald Trump seeks to “Make America Great Again,” his agenda is polarizing public opinion and market participants are now divided into two distinct camps.

Developed markets: US corporate hybrids: a good opportunity for investors?

In our last Fixed Income Quarterly publication, we highlighted the significant level of corporate bond issuance. US corporate hybrid securities are one driver of this trend, creating opportunities for investors.

Investment grade

Hybrids can offer attractive yields and spread pick-up; recent deals were issued with a yield of approximately 6.5% in USD.

High yield

Investors can improve the carry and potential for capital appreciation by moving into select secured bond structures outside the US.

Swiss bonds

Current valuations offer a compelling entry point for CHF bonds. A steep yield curve provides a strong carry and roll, and we favor long positions in intermediates.

Emerging markets: Resilience in the face of uncertainty

Strengthening fundamentals and clean technicals have supported emerging market (EM) bonds, which have shown remarkable resilience despite heightened trade uncertainty.