Fixed income: attractive entry points as markets carry on

Strong carry persists despite recent rallies, and attractive risk-reward dynamics are providing attractive entry points – particularly in credit markets. In the Q1 issue of Alphorum, we reconfirm our positive outlook for active fixed-income investment and look ahead to potential opportunities in fallen angels and sustainable credit. Key points include:

• The corporate bond is still back. Our constructive medium-term outlook is based on the robust carry available, attractive risk-reward dynamics in select credit segments and valuations offering entry points as markets digest growth and inflation data while responding to central-bank guidance
• We are not outright positive on sovereign bonds – yet. Improved valuations and a clearer risk and technical picture are needed to justify a fully constructive outlook. Inflation seems to have peaked, especially in the US, allowing for central-bank policy easing in the coming quarters. Having already tightened, emerging markets can loosen conditions to combat macro challenges
• Returns are on offer for well-calculated risks in corporate credit. Amid late-cycle dynamics, we favour the resilience of investment-grade issuers – especially financials. With interest-rate hikes due to affect fundamentals and refinancing conditions, we expect an increase in fallen-angel supply and will look for opportunities driven by blanket selling in any one sector
• Europe’s carbon border tax will benefit climate-aligned issuers. The European Union has agreed a carbon tax on imported steel, cement, fertiliser and other hard-to-abate goods into the bloc. Combined with the ‘green tilt’ being implemented by the region’s central bank, it is a further boost for sustainable fixed income

For more, read the Q1 issue of Alphorum using the download button provided.

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