Multi-Sector Credit Asset Allocation Perspectives: Emphasising carry in fixed income
Where do we see value now that credit spreads have retraced much of their 'Liberation Day' widening? What is driving our preference for carry in fixed income? What can consumer cash balances tell us about the US economy? We explore these and other questions in our latest Multi-Sector Credit Asset Allocation Perspectives.
4 minute read
Key takeaways:
- Gross domestic product (GDP) growth is likely to come in strong for Q2 before slowing in the second half; slower but still positive growth can be a supportive backdrop for fixed income assets.
- Front-end duration can hedge against a slower economy and potential Fed easing. We are less constructive on the back end of the yield curve given concerns around inflation and large government deficits.
- Spreads have retraced most of the ‘Liberation Day’ widening but remain outside of year-to-date (YTD) tights; with fuller valuations, we prefer to emphasize carry (income) over convexity (capital movement from changes in spread).
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.
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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:
- Gross domestic product (GDP) growth is likely to come in strong for Q2 before slowing in the second half; slower but still positive growth can be a supportive backdrop for fixed income assets.
- Front-end duration can hedge against a slower economy and potential Fed easing. We are less constructive on the back end of the yield curve given concerns around inflation and large government deficits.
- Spreads have retraced most of the ‘Liberation Day’ widening but remain outside of year-to-date (YTD) tights; with fuller valuations, we prefer to emphasize carry (income) over convexity (capital movement from changes in spread).