Although bond markets, as measured by treasury yield, were basically flat for Q3, we suspect there’s much more to say about the fixed income environment?
Why the disappointing growth?
Which leads us to the ongoing question of inflation, and the Fed’s next steps.
When might they start raising rates?
Can you say more about the employment picture?
We know that credit cycle analysis is a key aspect of your approach at Loomis Sayles. Where are we now in the cycle, and what does that mean for your portfolios?
That said, every cycle is different, with its own unique themes. This one is no exception, characterized by considerable upside from the reopening supported by significant fiscal and monetary accommodation. On that note, we expect Congress to pass some type of fiscal package, which is wrapped up in politics with both timing and size to be determined. Nonetheless, given our constructive view on the cycle, we expect inflation to remain elevated, with interest rates inching higher. We’re tilted to emphasize generating yield and being defensive against rising rates and favoring sectors and securities that should benefit from a global economic recovery.
What’s your outlook for fixed income sectors?
2 Quantitative easing is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to inject money into the economy to expand economic activity.
3 Plus sectors offer enhanced yield potential and diversification benefits, and may carry a higher risk profile.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of October 19, 2021 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.
All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity.
Credit risk: is the risk that the issuer of a fixed income security may fail to make timely payments of interest or principal or to otherwise honor its obligations.
Currency risk: Currency exchange rates between the US dollar and foreign currencies may cause the value of the fund's investments to decline.
Foreign and Emerging Market Securities risk: Foreign and emerging market securities may be subject to greater political, economic, environmental, credit, currency and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets.
Interest Rate risk: is a major risk to all bondholders. As rates rise, existing bonds that offer a lower rate of return decline in value because newly issued bonds that pay higher rates are more attractive to investors.
Below Investment Grade Securities risk: Below investment grade fixed income securities may be subject to greater risks (including the risk of default) than other fixed income securities.
Inflation Protected Securities/TIPS risk: Inflation protected securities move with the rate of inflation and carry the risk that in deflationary conditions (when inflation is negative) the value of the bond may decrease.
Mortgage-Related and Asset-Backed Securities risk: Mortgage-related and asset-backed securities are subject to the risks of the mortgages and assets underlying the securities. Other related risks include prepayment risk, which is the risk that the securities may be prepaid, potentially resulting in the reinvestment of the prepaid amounts into securities with lower yields.