Fixed Income Outlook: Feb 2022

Challenging Times Ahead for Both the Fed and Bond Investors?

With U.S.10 Year yields recently breaching 2%, one wonders how far they might rise if the Fed is determined to get inflation back under control. Recent FOMC minutes suggest that the Fed has no pre-determined path for rate increases. The hope of 'once a quarter, by a quarter' may not transpire, particularly if inflation proves to be 'stickier' than anticipated. Given the backdrop of high inflation, uncertainty on the timing and size of rate increases, and the shift to quantitative tightening, 2022 promises to be an interesting year.

Among this selection of papers, several examine the attractions of floating-rate issues, while others extol the virtues of the higher yields and quantifiable default risk found in private market credits. Elsewhere, several papers highlight the opportunities available in Asian credit, with Chinese bonds appealing on a relative yield basis. Structured debt and securitised loans are considered as alternatives to conventional debt. 

 

Predicting the New Issue Premium in High Yield (NN IP, Dec 2021)

NN IP investigates the new issue premium in bond markets and creates a model for high yield issues that predicts short term outperformance. A simulated new issue strategy also appears to outperform the new issue market.

Accessing Floating-Rate Loans Through CLOs (Janus Henderson Investors, Dec 2021)

For compliance reasons, this paper is only accessible in certain geographies

Janus Henderson experts outline the rationale behind using investment-grade collateralised loan obligations (CLOs) as floating rate options for investors anticipating further rises in interest rates. 

Video: Blending public & private credit to build better portfolios (Nuveen)

In this video, Anders S. Persson, CIO of Global Fixed Income, outlines his thoughts on the state of the market and suggests how a combination of both public and private debt can improve investment outcomes, enabling more investors to meet their investment goals. 

Private Credit 2022 Market Outlook (LGIM)

For compliance reasons, this paper is NOT accessible in the United States and Canada

LGIM considers the outlook for private credit markets in 2022, which they feel faces similar challenges to public fixed income markets. 

A Multi-Sector Approach for Today’s Bond Market (Lord Abbett, Jan 2022)

For compliance reasons, this paper is only accessible in the UK & Europe

Lord Abbett suggests that given prevailing market conditions, a strategy that permits the ability to invest across asset classes and credit qualities may prove to be beneficial. 

Podcast: Opportunities in Bank Loans (MetLife IM, Jan 2022)

Matt McInerny, VP Leveraged Loans, discusses the bank loan market, its size and structure, ratings breakdown, and how capital raised is frequently used. 

Fixed Income Perspectives January 2022 (Capital Group)

For compliance reasons, this paper is only accessible in certain geographies

The team from Capital Group provides their global macro and market insights, highlighting the high nominal and real yield opportunities in China.  

ESG Improvers in Credit Investing (Amundi, 2021)

For compliance reasons, this paper is NOT accessible in the United States

Amundi investigates whether ‘ESG Improvers’ – companies with positive momentum in addressing ESG risks – can generate additional alpha as improving ESG performance is likely to lead to enhanced cashflow and consequently, tighter yield spreads. 

2022 Global Credit Outlook (BlackRock)

For compliance reasons, this paper is only accessible in the United States and Canada

BlackRock’s Global Credit Outlook focuses on the highest levels of inflation in decades, and the gradual withdrawal of support from central banks as they transition from a period of quantitative easing to one of quantitative tightening, while simultaneously raising rates. 

Asia Outlook: Five fixed income themes for 2022 (Lombard Odier IM)

For compliance reasons, this paper is only accessible in certain geographies

Lombard Odier suggests five key themes for Asian fixed income investors to consider, including further Chinese policy easing and the relative attractiveness of Asian investment grade bonds.

Asia-Pacific Credit Outlook 2022 (S&P Global Ratings)

S&P Global Ratings' outlook for Asian credit markets notes that slower growth and an uncertain trajectory for credit may have implications for highly indebted companies and sectors. They are also concerned that inflation may have the potential to squeeze corporate margins.  

Financing the Energy Transition: Role of Green Bonds (OIES, 2022)

In this paper, the Oxford Institute for Energy Studies looks at the growth in the green bond market, the existence and evidence of ‘greenium’, and some of the other more recent innovative financing instruments. 

The Rise of Alternative Yield in Modern Portfolios (JANA, 2022)

Australian asset consultancy JANA looks at the rise of alternative yield, or alternative credit, strategies as a response to a low yield environment. 

U.S. Structured Finance Report 2022 (Aegon Asset Management)

Aegon argues that securitised debt offers some significant attractions for investors in 2022. Opportunities in floating rate and excess carry look particularly appealing.