“Fixed income, waiting for the turning point, taking refuge in cash is not the only option“. Like this Andrew Lake, Head of Fixed Income di Mirabaud AMcomments on the situation in which the markets find themselves, alerting those investors who have decided to take refuge in liquidity, snubbing decidedly more attractive bonds.
“Today investors are faced with significant daily volatility, great uncertainty and large swings in performance between high and low risk assets – points out Lake in a note – Due to a lack of market direction some investors have taken refuge in cash, however we do not believe this is a viable investment strategy and believe it will ultimately prove costly looking 12 months ahead.
According to the head of the fixed income division of Mirabaud AM, in fact, “despite these turbulences on the markets, there are some interesting fixed income investment opportunities for those with a medium-long term vision”.
In short, the “liquidity is not the answer”.
Below the “opportunity in the global fixed income landscape” indicate da Andrew Hake:
Developed market government bonds
“The UK is not particularly interesting right now. The short end of the curve is fine because the country will not go bankrupt, but the longer end will likely show continued volatility and we have no indication of what the government will do next. Beyond the UK, short-term fixed income looks attractive to risk-averse investors. 2-year Bunds yield over 2% and US Treasuries over 4%”.
Investment grade corporate bonds
“Investment grade debt is the fixed income area where we see the greatest opportunity. Spreads are pricing in a lot of bad news and with the entire curve repricing in, there’s good reason to invest in both short and long-dated bonds. As interest rates peak, inflation starts to fall and the economic slowdown takes hold, we will see the potential to hold longer-dated assets. For the more conservative, short-term bonds offer very attractive yields today”.
High yield corporate bonds
“Spreads are interesting again, while overall returns are close to 10%. We see opportunities in higher quality high yield debt, especially in stronger companies with strong balance sheets.”.
Emerging Markets Debt
“The segment as a whole isn’t a good buy at the moment, but there are pockets of opportunity within it. Brazil, Mexico and the Middle East are markets where we have found interesting investments recently. With metrics across the market at 20-year extremes, it’s an interesting time to consider adding select, quality positions.”
L’outlook? Per Andrew Lake, Head of Fixed Income di Mirabaud AM, is the following:
“The markets will remain volatile for the foreseeable future and we are watching some signs of liquidity-related stress, but nothing systemic at this point. The fear is that the Fed – look at Bill Ackman’s recent comment – (and, secondly, the ECB) raise rates too aggressively and provoke a much more severe recession than the markets predicted. This risk has increased, but much will depend on the fall in inflation. All the indicators we observe suggest that inflation is starting to fall, but not as quickly as the Fed would like. However, I expect a pause in monetary tightening in the coming months, to allow the effects of the ongoing hikes to manifest themselves”.