Balancing Yield And Risk For A Transitioning Credit Cycle

Doubling of debt in the investment grade sector is a top risk that the co-manager of Loomis, Sayles & Company’s Core Plus Bond strategies is navigating late cycle.

Yield accounts for the vast majority of returns in the bond market, says Rick Raczkowski, EVP, Co-Manager of Core Plus Bond Strategies, Loomis, Sayles & Co. This is why it is an important component of fixed income portfolio management. However, investors need to recognize that higher yield brings higher risk. Raczkowski, a member of the Relative Return Team, discusses the late cycle environment and where he sees yield and value opportunities, as well as risks:

  • 2020 outlook: US and global economies should avoid a recession in 2020, but growth is expected to slow.
  • Follow the debt and you may find the next problem: Be on the alert for sectors that have been increasing debt faster than trend.
  • Investment grade corporate debt has risen significantly during this recovery.
  • Select opportunities remain in high yield and bank loans.
  • Volatility flare-ups could occur from monetary or trade policy mishaps, 2020 elections, or global growth slowdown.
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. Past performance is no guarantee of, and not necessarily indicative of, future results. This video is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of October 23, 2019 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.

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.