Fixed Income

So far, most fixed income asset classes have experienced a tumultuous 2022. With high yield markets bucking the trend in recent weeks, George Curtis takes a closer look at the drivers of the sector’s recent strength and its current opportunity set.

Despite the ECB's recent review bringing some previously debated points surrounding AT1s to the forefront, we believe any changes would create undesired, real-world consequences if implemented.

We think a base case that central banks will follow a more measured monetary policy path than markets are currently pricing in is reasonable given the current backdrop.

Default rate estimations depend on how you define defaults and what index you use, but there is no doubt we are at record lows in European high yield at the moment.

Powell’s hard line may have surprised investors, particularly in light of recent market volatility and increasing geopolitical risk in Eastern Europe, but the Fed’s fear of prolonged higher inflation looks to be trumping those concerns.

Given the swiftness of the Fed’s pivot we think risks are tilted towards the central bank doing more and not less. We wouldn’t even rule out a 50bp rate hike at some point.

As bondholders, we are comforted by all the banks passing such a severe test.

Against a backdrop of 4.20% year-on-year UK consumer price inflation (CPI), if you got your timing right, linkers (inflation-linked UK government bonds) will certainly have outperformed conventional Gilts by some margin.

The labour market in the US shows little sign of weakening, despite the huge number of jobs already created this year.

Markets have clearly experienced some periods of volatility this year, and while European CLOs haven’t been immune to this, both fundamentals and prices have been remarkably stable.

Emerging markets assets have endured a lot of punishment during 2021.

With floating rate assets likely to be high on investors’ shopping lists for 2022, Doug Charleston looks at the floating rate options across fixed income and highlights the highest yielding opportunities.