Fixed Income and Credit Market Outlook: Dec 2020

Winding down while looking forward

As the year comes to a close, it is remarkably odd how similar the 2020 end-of-year fixed income outlook looks to the beginning of the year. Spreads have nearly returned to their pre-crisis levels across many fixed income sectors, aided particularly by extremely accommodative global monetary policy. Speaking of which, the December FOMC meeting concluded this Wednesday offering slightly positive data on the U.S. economic outlook and pledging continued support via bond purchases, but no significant changes in the overall duration of the Fed's holdings.

While the viral cloud dissipates due to vaccine proliferation, central banks continue to engage in QE, and economic growth rises, this ought to provide a positive backdrop for credit markets in 2021. In the below list of papers, top asset managers weigh in with their year-end thoughts on the fixed income asset class. Many seem to have their eye on opportunities in emerging market debt, though high yield and leveraged finance also enjoy multiple mentions.

Shifting Dynamics in EM Local Currency Investing (PGIM Fixed Income)

Three PGIM Fixed Income CFAs discuss the present opportunity set in EM local currency debt. The paper pays particular attention to the influence of foreign exchange and recent shifts in the dynamics of this market.

The CLO Investment Opportunity (Eaton Vance, Nov 2020)

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

Eaton Vance explains the fundamental characteristics of collateralised loan obligations (CLOs), including the positive attributes of these assets and potential risks involved for investors.

High Yield Investing in the Nordics (First Sentier, 2020)

For compliance reasons, this paper is only accessible in the EMEA region

How do Nordic institutional investors perceive investments in high yield debt? A recent survey gathers feedback on the subject, positing that high yield is an important strategic allocation for this set of investors.

Delving Into Global Corporate Analysis (MetLife Investment Management, 2020)

MetLife Investment Management delves deep into corporate credit analysis for emerging markets, looking at credit spreads alongside an analysis of the LatAm commodities sector, the TMT sector in the CEEMEA region, and financial institutions in Asia.

Invesco Global Fixed Income Strategy (Invesco, Dec 2020)

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

Invesco makes the case for allocating funds to EM debt in the present environment, especially as vaccines start being distributed and the outlook for global growth begins to look more positive.

Fixed Income Outlook 2021: Just another range trade? (Robeco, Dec 2020)

Despite such a crazy year, many fixed income markets will begin the new year almost right where they began 2020, in terms of credit spreads. Will 2021 be a year where fixed income markets are similarly range-bound?

2021 Fixed Income Outlook (Wellington Management)

Two CFA charterholders from Wellington Management discuss the outlook for several segments of the fixed income market in this brief 2021 outlook. Bank loans currently stand out as one of their areas of highest conviction.

Market GPS Fixed Income Outlook 2021 (Janus Henderson, Dec 2020)

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

Jim Cielinski, Janus Henderson's Global Head of Fixed Income, gauges the direction of fixed income markets in 2021. Corporate issuance will likely slow and central banks will remain accomodative.

Emerging Market Debt Outlook for 2021 (Capital Group, Dec 2020)

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

Capital Group examines four of the factors propelling EM debt forward into 2021 – viral concerns, macroeconomics, geopolitics, and the fundamentals within global emerging markets.

The Outlook for US and Eurozone Debt in 2021 (BNP Paribas AM, Dec 2020)

In this brief 2021 credit outlook, BNP Paribas AM looks at the potential effects of ECB stimulus, the risk of Japanification, and differences between the US and Europe.

Video: Why now for US high yield? (Federated Hermes, Dec 2020)

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

This 58-minute Federated Hermes Meeting Room webcast is a roundtable discussion where several high yield experts chime in about their cautiously optimistic outlook for high yield credit in 2021.

EM Corporates: Arbitraging to move up in yield and quality (Lazard AM)

Lazard AM lobbies for increased allocations to EM corporate bonds given their positive risk/return characteristics. In many instances, the yield differential is substantial for EM vs DM bonds with the same credit quality.

Leveraged Finance: Strong demand ahead (PineBridge Investments, Nov 2020)

PineBridge Investments reviews their outlook for each segment of the leveraged finance market, providing color on fundamentals and valuations for EM corporates, high yield, CLOs, and leveraged loans.

Facts and Fantasies About the Green Bond Premuim (Amundi, 2020)

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

Amundi AM investigates whether green bonds present a premium on the secondary market due to increased demand from ESG-minded fixed income investors.

Climate Change: Catalyst to green bond market growth (Franklin Templeton)

For compliance reasons, this paper is only accessible in the EMEA region

In this paper, David Zahn of Franklin Templeton discusses the growing demand for ESG-related investments. He explores some recent developments in the green finance bond market.