Fixed Income

With the Fed’s stance suggesting it is prioritising growth over sticky inflation risks, volatility in longer dated bonds is likely to persist and the case for increasing duration in fixed income is not compelling.

Collateralised loan obligations, or CLOs, have become an increasingly popular asset class within global fixed income.

You can now watch the replay of our webinar: The new multi-plural world: Macro divergence meets yield

Despite questions about the Federal Reserve’s independence, growing US isolationism, and global trade risks, we see a runway for fixed income. Credit fundamentals remain strong alongside robust technicals and improving valuations. Our Fixed Income team shares where they are finding alpha opportunities and why they are cautiously optimistic.

We view short-dated high-yield bonds trading below par as a compelling opportunity given the elevated volatility in long-end rates. These bonds offer a combination of attractive carry, potential for capital appreciation if called or tendered at a premium, and resilience against broader market volatility.

As Switzerland faces a tariff shock, credit spreads have tightened to early-year levels, leaving little room for further compression. Despite weakening fundamentals, technical factors continue to provide strong support. We believe near-term widening is unlikely, but we see valuations as stretched; we advocate a cautious stance.

Strong performance of EM local currency bonds has been driven by a bearish US dollar and fundamental factors supporting sustainable appreciation toward a stronger equilibrium.

With strong fundamentals, broad region and sector diversification, and a track record of weathering financial crises, emerging-market investment-grade (EM IG) bonds have evolved into a high-quality asset class, in our view. Yet, despite a robust risk-return profile, EM IG remains significantly underrepresented in actively managed, dedicated strategies.

The corporate bond market remains strong, supported by robust new issuance and investor flows. With spreads near historic lows for euro corporate bonds, alpha generation requires selective positioning. We see the best opportunities in the belly of the curve and continue to favor corporate hybrids.

While we expect the Fed to resume its easing cycle, we don’t foresee the ECB or the BoE cutting rates, despite market expectations. And the BoJ is likely to hike rates. This fragmented global monetary policy landscape could have a significant impact on economies and markets.

Accelerating rating upgrades and renewed inflows into the asset class are likely to support EM spreads relative to their historical levels and other credit markets. Absent a major global shock, we expect EM bonds to remain resilient, offering stable carry even if capital appreciation becomes more difficult to capture.

The $5.2tr asset-backed finance (ABF) market represents a growing opportunity to gain exposure to high quality loan pools and the returns they can generate.