United Kingdom, Intermediaries

An opportunistic approach to uncertainty: fixed income in 2020

Amid growing market uncertainty, unconstrained fixed income portfolio managers assess opportunities and risks across rates, currencies and credit in 2020.

Views expressed are those of the author and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Key points

  • We think the combination of stabilizing but below-trend growth, accommodative liquidity, and rising uncertainty is likely to result in a weakening trade-off between growth and inflation globally.
  • We believe many factors cited for the US dollar’s strength in 2019 have largely been reversed.
  • We think many traditional sectors do not offer appropriate yield compensation for their underlying risks.
  • We find inflation-linked bonds attractive globally.
  • We continue to favor bank loans and emerging markets (EM) local debt.

WE THINK 2020 WILL BE CHARACTERIZED BY INCREASING UNCERTAINTY on inflation, corporate earnings, geopolitics, and the path of the global cycle. At the same time, we anticipate continued dovish policy from central banks globally, with the rising probability of expanded fiscal loosening by select governments.

In our view, the combination of stabilizing but below-trend growth, accommodative liquidity conditions, and rising geopolitical uncertainty is likely to result in a weakening trade-off between growth and inflation globally. Furthermore, with several government bond markets trading at negative yields, many investors are wondering whether fixed income still has the potential to generate the total returns they seek.

Here, we provide our outlook as we begin 2020. We think the key positioning drivers outlined below offer a flexible structure for capturing complementary total-return opportunities while still providing the “anchor to windward” quality desired from bonds.

Outlook

In 2020, global fixed income investors face a much more difficult environment than at the start of 2019. We believe global growth has entered a late-cycle stage and many traditional sectors do not offer appropriate yield compensation for their underlying risks…

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