investment viewpoints

Alphorum: transition states in fixed income

Alphorum: transition states in fixed income
Yannik Zufferey, PhD - Chief Investment Officer, Core Business

Yannik Zufferey, PhD

Chief Investment Officer, Core Business
LOIM Fixed Income team -

LOIM Fixed Income team

Welcome to Alphorum, our quarterly collation of alpha-seeking views from the LOIM global fixed-income team. In this launch issue, we focus on two prevalent themes: the outlook for US growth and inflation, and how credit investors can accelerate in the race to net zero. 


US exceptionalism

The diverging growth trajectories of the United States and Europe is becoming clear. In the US, amid a resurgent economy and massive fiscal stimulus plans, the Federal Reserve is taking a patient approach with monetary policy by accommodating inflationary signals and increased public-debt issuance. In contrast, the European Central Bank is more concerned about inflation and public debt as the bloc’s economy struggles to recover from the pandemic.

Fiscal support, Fed dovishness and economic reopening has spurred inflation risk to stage a comeback in the US. We expect rates volatility, which rose above the historical average in Q2, to remain elevated as investors continue to assess how the rollout of US fiscal stimulus will impact inflation.

Markets currently expect the Fed to raise the benchmark interest rate in 2022 but the accuracy of this timing is uncertain given the slack in the labour market and the Fed’s emphasis on accommodating growth. We do see upwards pressure on interest rates but perceive managing the risk of rates volatility as a more immediate concern than judging when the next increase will occur.


Net zero: the race is on

The focus on decarbonisation in the policy, social and corporate spheres is making 2021 a pivotal for year for the transition to a net-zero economy. Efforts to achieve the goals of the Paris Agreement will impact every sector in the global economy and hugely influence sources of risk and opportunity in fixed-income markets.

In our view, it is essential to identify companies whose emissions trajectories are aligning towards a net-zero future – particularly current heavy emitters in critical sectors, such as steel or cement, whose transformation will accelerate the green transition. We call these businesses ‘ice cubes’ and they are instrumental to our net-zero fixed-income approach.


Market perspectives

We also provide our views of the risks and opportunities in major fixed-income markets worldwide, from sovereign bonds to high-yield credit, and perspectives on integrating sustainability. Read our overview of each market below, or download the full issue of Alphorum.

important information.

For professional investor use only
This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document  nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. In Luxembourg, this material is a marketing material and has been approved by Lombard Odier Funds (Europe) S.A. which is authorized and regulated by the CSSF.
©2021 Lombard Odier IM. All rights reserved.