Fixed Income: Top Five Themes to Watch in 2022
Inflation, interest rates, Fed policy, volatility, China growth – Loomis, Sayles & Co.’s investment experts discuss 2022
- Inflation: Rick Raczkowski, Portfolio Manager, Core Plus Bond Team. An always important factor in fixed income, inflation and its implications will be especially consequential for 2022 and beyond. Given today’s high inflation, we’ll be zoning in particularly on housing prices and labor costs as potentially enduring inflationary forces.
- Monetary Policy: Brian Kennedy, Portfolio Manager, Multisector Full-Discretion Team. Given the Federal Reserve’s eagerness to fight inflation, in our view, recent statements indicate they could accelerate bond purchase tapering. Along with the potential for rate hikes, this could possibly move real rates higher.
- Higher Rates (and Fear of Rates): Cheryl Stober, Bank Loans Investment Director. Investors’ desire and timing for pursuing leveraged loans often coincides with their fears of rising rates, as they view this sector as protection in that regard. We’ll be alert to see how this unfolds, and believe the credit environment, low default forecasts, and robust demand combine for a positive outlook for leveraged loans.
- Higher Volatility: Scott Service, CFA, Portfolio Manager, Global Bond Team. While credit quality is fundamentally sound and default expectations low, corporate credit could come under pressure if the Fed becomes more hawkish than expected. We’ve reduced credit exposure and will simultaneously be watching for rising star opportunities in energy, finance, and healthcare, as well as issuers in sectors likely to benefit from economic reopening.
- A Shift in Growth Dynamics in Asia: Elisabeth Colleran, Portfolio Manager, Emerging Market Debt. China has long been the bedrock for Asia growth, though we expect the country’s policy efforts in certain sectors – particularly real estate – could lead to lower, though still respectable growth. We anticipate Asia growth will be supported by India, Indonesia, Malaysia, and other countries. In our view, the rebalancing of growth in Asia could create interesting opportunities outside of China.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of December 8, 2021 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
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.
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.
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.
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.
Real interest rate is the rate of interest an investor, saver or lender receives after adjusting for inflation.
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