The Thirst for Yield and the Outlook for Credit

The Outlook for Fixed Income Markets - Jul 2020

As a recent Enterprising Investor blog article pointed out, the traditional 60/40 portfolio is dead, or at least dying. Bonds that used to provide both safety and yield are now in question of providing either. As a result, investors and asset allocators may need to get more creative than just extending out the curve and/or taking on more credit risk. But where should they turn for additional yield?   

Some options include private credit, real assets, preferred securities and leveraged loans. The following group of papers discuss this conundrum in more detail, while also providing an update on the outlook for fixed income sectors.

A Risk-based Approach to Harnessing Alternative Sources of Income (Nuveen, 2020)

Nuveen explores the prospect of income generation within real assets, private credit and other non-traditional fixed income sectors. They also provide a risk-based framework for fixed income portfolio construction.

High Yield Through the Cycle (MFS blog, Jul 2020)

In this paper, MFS portfolio managers discuss the characteristics and return profile of high-yield bonds, making the case for a strategic allocation.

Leveraged Loan Investment and ESG During Covid-19 (M&G Investments, Jul 2020)

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

M&G Investments looks at the ESG characteristics of the European leveraged loan market in the time of COVID-19, including how the private corporate world has been affected by the virus, and the potential implications for private equity investors.

An Improving Economy Favors High Yield (PineBridge Investments, Jul 2020)

Despite several risks remaining on the horizon, PineBridge discusses improving economic data and June's rebound in fixed income markets.

Quarterly Outlook (PGIM Fixed Income, Jul 2020)

PGIM Fixed Income provides a review of Q2 market activity, an overview of the near-term prospects for fixed income sectors, and a glimpse at the light lurking near the end of the tunnel.

Redefining Fixed Income (Enterprising Investor blog, Jun 2020)

Where should investors turn for yield and safety, if traditional high-quality bonds (and the typical 60/40 portfolio) can't deliver either? This blog article discusses several options for asset allocators to consider.

The Income Conundrum: Where to find sustainable income (Capital Group, Jun 2020)

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

Capital Group looks at the current drivers behind the high-yield debt market, as well as potential attractive opportunities for investment in fallen angels.

Global Fixed Income Strategy (Invesco, Jul 2020)

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

Invesco presents some of the key conclusions from their June Global Investors’ Summit, which was held virtually for the first time this year. Included are outlooks for major markets, and other significant developments.

Fixed Income Outlook: Rising waves (Robeco Jul 2020)

Robeco expects further market volatility, as risk assets may already be too bullish in pricing in a swift recovery. This paper focuses on the present macroeconomic picture and its effect on fixed income sectors.

Podcast: Spoiled for choice in alternative credit (NN IP, Jul 2020)

In this podcast, NN IP's Head of Alternative Credit, Niels Bodenheim, looks at the opportunity set available to investors actively seeking high yields and stable cash flows within the alternative credit market.

Under the Hood of Active Credit Managers (Financial Analysts Journal, 2020)

The authors examine the returns of actively managed credit mutual funds and hedge funds in order to determine the extent to which their returns are sourced from traditional risk premia.

Emerging Markets Debt Monitor: Q2 2020 (Eaton Vance)

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

Eaton Vance's Emerging Markets Debt Monitor recaps Q2 events and delves into the outlook for EM FX, sovereign credit, rates and corporates during Q3 2020.

EM Debt and Covid-19: Perception vs reality (PineBridge Investments, Jul 2020)

Why do emerging market economies have a lower COVID-19 mortality rate than developed markets, and how does this insight feed into their overall vulnerability and the outlook for emerging market debt at present?

Assessing Sovereign Resiliency in the Pandemic (Metlife IM, Jun 2020)

Due to the pandemic, MetLife Investment Management explains that forces such as demand shocks, spending pressures, and revenue declines will likely lead to a decline in sovereign credit profiles across the globe.

Podcast: Thriving amid volatility - Asian credit (Neuberger Berman, Jun 2020)

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

What are the key factors behind the resiliency (and relatively low volatility) within fixed income markets in Asia? Neuberger Berman's Prashant Singh takes a look at the virus's effects upon the region and what the future may hold.

The Prospects for EM — Looking beyond the storm (PGIM Fixed Income, Jul 2020)

This paper evaluates both the challenges and the prospects for 25 emerging market economies in the medium term, looking beyond COVID-19 vulnerabilities to broader macroeconomic considerations.

China Fixed Income: Investing in a new world (UBS AM, Jun 2020)

UBS Asset Management delineates megatrends that are significant to the Chinese fixed income market, including increased utilisation of RMB in currency reserves, the growth of Chinese pensions and the rising status of China's economy.

Chinese Bond Market: Evolution and characteristics (FTSE Russell, 2020)

FTSE Russell looks at the characteristics of the Chinese bond market, including recent reforms, China's inclusion in global indices and other factors leading to additional foreign investment in Chinese markets.

The Shape of Credit (Janus Henderson blog, Jun 2020)

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

Janus Henderson prefers the short end of the investment grade market, focusing on higher quality financial issues and corporate debt that exhibits defensive qualities.

Fixed-Income Outlook: Asia’s fundamentals shine (Manulife blog, Jul 2020)

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

Manulife suggests that Asian economies and their bond markets are well placed to ride out any upcoming uncertainties caused by the after effects of the COVID-19 crisis.

ABOUT THE AUTHOR

Andrew Perrins is a former Actuary and Asset Allocator. After qualifying as an Actuary, he worked for 15 years in investment management, serving as Director of Asset Allocation for Abbey Life and for Chase Manhattan, before setting out on a more entrepreneurial path.

To contact him, email [email protected]