Multi-Sector Bonds

This significant flattening came about as the Fed signalled its determination to push through policy normalisation, with four hikes now expected for the calendar year 2018, which would take the upper bound of the Fed Funds rate to 2.5% by year-end.

Credit metrics, as measured by the rating agencies, continued to improve throughout the first half of this year, with all corners of the globe having comfortably more upgrades than downgrades.

Last year we wrote about the forthcoming "STS" (Simple, Transparent and Standardised) regulation for securitisation, designed in part to harmonise eligibility and capital charges for ABS across the wider regulatory landscape.

We have often started our portfolio discussions with clients this year with what we don’t like in fixed income. Unfortunately the list for 2018 is relatively long and quite large when measured on a market cap basis.

Fixed income managers always want to have the flexibility to find the best value across their investment sphere and therefore need the capacity to buy bonds in different currencies.

Several times this year we have discussed the benefits of “roll down” in an environment that for fixed income investing is particularly unfriendly. We believe roll down gains will be one of the best ways to protect portfolios in 2018 from the rising rate curves that we have been experiencing so far.

One of the most important considerations for us as bond investors is determining where we are in the economic cycle.

Following Monday’s volatility in the rates market and the subsequent “meltdown” in US equities, which saw the Dow Jones falling by more than 1,500 points intraday; yesterday had a more orderly feel to markets, and ultimately the 3 major indices in the US, the Dow Jones, S&P 500 and Nasdaq, are all still in positive territory for the year to date.