Fixed income

TwentyFour Asset Management’s Diva Bashay reflects on a quarter which tested market sentiment through geopolitical tensions, shifting interest rate expectations and UK political developments.

TwentyFour Asset Management’s Gordon Shannon reflects on a quarter shaped by geopolitical tensions, government bond volatility and shifting central bank expectations.

The primary risk in a fixed income portfolio is credit risk – the risk that a bond issuer will fail to make payments (or “default”) on its debt.

The reopening of the Strait of Hormuz has reduced inflation concerns. While tight credit spreads limit upside, fundamentals and technicals remain supportive of fixed income markets. We are modestly constructive but cautious, particularly on private credit, where complacency around liquidity risks appears underappreciated.

The closure of the Strait of Hormuz reignited inflation concerns and prompted major central banks into a more hawkish stance. While inflation has risen, we believe the shock is temporary, making further ECB and Fed tightening unlikely. An additional hike from the BoJ is likely, in our view, but it risks moving too slowly.

EM fixed income stayed resilient through the war-induced shock. As oil prices fell, inflation remained contained. Capital inflows resumed after a brief interruption and sovereign rating upgrades continued. We believe the asset class is supported by elevated global risk appetite, attractive local-currency yields, and diversification away from US assets.