Multi-Sector Credit Asset Allocation Perspectives: Relative value shifts in fixed income
How has relative value shifted across fixed income sectors amid tariff-related volatility and what does this mean for asset allocation? The Multi-Sector Credit Asset Allocation Perspectives explore this and why diversification is key.
4 minute read
Key takeaways:
- Tariffs are likely to ultimately settle well below initial numbers in our view. If employment substantially weakens, the US Federal Reserve (Fed) is well-equipped to step in given current monetary policy.
- High yield (HY) corporate debt valuations are more compelling with spreads near the median of the last 10 years; lower bond prices offer better convexity and total return potential.
- Many fixed income sectors are offering attractive yields in the mid-to-high single digits with lower historical volatility than equities. Fixed income assets are exhibiting low or negative correlation to equities, making them an essential diversifier of investment portfolios.
The Multi-Sector Credit Team share perspectives on the fixed income market and their quarterly asset allocation ranking. They highlight a timely chart to watch, explore relative value opportunities, and provide insight on their latest asset allocation scores by fixed income sub-sector.
DownloadIMPORTANT INFORMATION
Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa. High-yield bonds, or “junk” bonds, involve a greater risk of default and price volatility. Foreign securities, including sovereign debt, are subject to currency fluctuations, political and economic uncertainty and increased volatility and lower liquidity, all of which are magnified in emerging markets.
Securitized products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.
Collateralized Loan Obligations (CLOs) are debt securities issued in different tranches, with varying degrees of risk, and backed by an underlying portfolio consisting primarily of below investment grade corporate loans. The return of principal is not guaranteed, and prices may decline if payments are not made timely or credit strength weakens. CLOs are subject to liquidity risk, interest rate risk, credit risk, call risk and the risk of default of the underlying assets.
Bank loans often involve borrowers with low credit ratings whose financial conditions are troubled or uncertain, including companies that are highly leveraged or in bankruptcy proceedings.
Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.
Related insights
All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information.
4 minute read
Key takeaways:
- Tariffs are likely to ultimately settle well below initial numbers in our view. If employment substantially weakens, the US Federal Reserve (Fed) is well-equipped to step in given current monetary policy.
- High yield (HY) corporate debt valuations are more compelling with spreads near the median of the last 10 years; lower bond prices offer better convexity and total return potential.
- Many fixed income sectors are offering attractive yields in the mid-to-high single digits with lower historical volatility than equities. Fixed income assets are exhibiting low or negative correlation to equities, making them an essential diversifier of investment portfolios.