Active Fixed Income Insight for Markets in Motion
Liquidity, Reserves & High Grade for Late Cycle Unknowns
Slowing global growth implications for fixed income markets and portfolios are explained by Matt Eagan, Co-head of Loomis Sayles’ Multisector team.
- Global growth is seen as the major risk: Global economy appears to be in a downturn, driven primarily by policy decisions and trade policy.
- Active management is critical throughout the credit cycle, but more so during the later stages – as valuations of the market appear fair at best and security selection requires a greater degree of caution.
- A significant amount of negative yielding instruments around the world, mainly outside the United States, is dragging down yields across the globe.
- In their search for yield, investors have been taking on risk in less liquid areas and down in quality – which has compressed the risk premium normally found in equities and credit markets.
- Building reserves, having liquidity, and upgrading to higher quality bonds are ways the Multisector Full Discretion Team is adding a degree of caution into portfolios.
Bonds may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity. Below investment grade bonds may be subject to greater risks (including the risk of default) than other fixed income securities.
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