Multi-Sector Bond Quarterly Update – January 2023

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.

Collateralised loan obligations (CLOs) are securitisations backed by a large pool of senior secured corporate loans, which are financed partly via selling bonds to investors.

Multi-Asset Credit (MAC) is an active, unconstrained fixed income strategy that targets higher returns for investors who accept greater market and credit risk.

Having initially expected central banks to cut interest rates in 2026, investors now face a hawkish pivot after the European Central Bank (ECB) hiked rates at its June meeting.

The conflict in Iran has driven a sharp repricing at the front-end of rates markets, pushing central bank expectations from cuts to hikes in a matter of weeks. While the reaction is understandable given the inflationary impact, the scale of the move has left front-end yields on a more attractive footing.

UK government bond yields have pushed higher this month as markets have digested a building political crisis, with the prime minister, Sir Keir Starmer, now set to face a Labour Party leadership contest following dire local election results on May 7.