Global High Yield Bonds

After a challenging January, which saw markets beginning to come to terms with a very hawkish Fed pivot and rising Russia-Ukraine tensions, it is worth taking stock of the moves we have seen in fixed income over the last few weeks.

Powell’s hard line may have surprised investors, particularly in light of recent market volatility and increasing geopolitical risk in Eastern Europe, but the Fed’s fear of prolonged higher inflation looks to be trumping those concerns.

Emerging markets assets have endured a lot of punishment during 2021.

Fundamentally the outlook for 2022 appears less supportive than it was 12 months ago.

What we are currently experiencing is a disconnect between monetary policy, the economy and the markets, a disconnect that in our view will struggle to survive much longer.

With rising government bond yield curves one of the biggest concerns for fixed income fund managers going into 2022, Eoin Walsh points to interest rate swaps as one option for reducing the rates risk of a portfolio without impacting its credit exposure.

With forecasts remaining low and credit fundamentals as supportive as they are, the outlook for US high yield continues to look compelling.

Fixed income markets have experienced a reasonable correction over recent weeks and, for higher-yielding indices at least, their first negative period so far this year.

Given the prospect of central bank tapering and ultimately interest rate rises are looming ever larger, it is no surprise dealmakers are trying to take advantage of attractive financing terms while they still exist.

This looks to us like a buy-into-the-dip opportunity, but investors should be wary of taking on too much rate sensitivity as the move in risk-free curves is likely to persist until the rate hike cycle is actually on the way.

Our base case is for a continuation of quite high growth and a modest inflation overshoot. For bond investors, positioning for stagflation could be a dangerous trade if that base case bears out

Despite the impressive returns of Euro HY over the last year or so, the backdrop for the asset class continues to suggest there is more upside to come.