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We’re changing things up. Every year, Loomis Sayles features outlooks from our sector teams — teams composed of traders, analysts, strategists and portfolio managers immersed in their respective sectors of the market. This year, we’re tailoring our outlooks to focus on what’s top-of-mind for many investors. We asked each sector team three questions that drill into key themes in their respective sectors.

Macro Strategies Team:
Three key drivers supporting asset performance in 2021 are Covid-19 vaccine distribution, supportive fiscal policy, and monetary policy accommodation.

High Yield Sector Team: Forces have helped to increase the overall credit quality of the high yield market. The higher average quality of the market could help drive high yield spreads toward historic lows on the back of unprecedented amounts of global quantitative easing.

Global Emerging Market Equities Team: Among the several factors that should contribute to strong EM equity markets in 2021 are stronger consumer and business confidence due to the Covid-19 vaccine rollout, manufacturing sector recovery from a low base, and rise in global travel and tourism.

Emerging Markets Debt Sector Team: The global economic recovery is the most important factor in the team’s view -- believing widespread fiscal and monetary support and vaccination campaigns around the world could support a strong recovery.

Global Credit Sector Team: An improvement in credit metrics is expected starting in the second quarter of 2021, based on comparisons to last year and an anticipated recovery in economic activity as the Covid-19 vaccine is distributed.

Bank Loans: Investors have been taught to think of loans as a bet on rising rates, while high yield bonds are typically viewed as a yield play and investment grade corporates are often considered a safer choice with a lower yield. But, with rates expected to be low for a while, income-focused investors may want to view loans as one of several yield plays.

Investment Grade Sector Team: Outlook remains constructive for the investment grade (IG) bond market. While recognizing that valuations may appear full relative to historical levels, we think IG spreads can continue to grind modestly tighter in a recovery scenario.

Municipal Bonds Sector Team: Fiscal pressure should remain significant over the medium term as the pandemic continues to weigh on large segments of the economy. Further, the revenue hit has varied widely, with some states facing substantial budget shortfalls. Fiscal aid will likely be critical to limit deep cuts and additional layoffs.

Mortgage and Structured Finance Sector Team: Consumers and housing – major drivers of underlying risk in securitized credit markets – held up well during 2020 given fiscal stimulus and increased housing demand. This dynamic coupled with relatively lagging spread tightening has left the sectors positioned to potentially outperform in a continued credit rally.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed may change based on market and other conditions.­

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. Investors should fully understand the risks associated with any investment prior to investing.

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