Key takeaways:
- A confluence of demographic and geopolitical forces likely spells the end of the 50-plus-year fixed income bull market, with higher levels of volatility, inflation, and interest rates now becoming the norm.
- The combination of deteriorating fiscal positions among certain developed markets and the inflationary impact of deglobalization will, in our view, exert upward pressure on longer-dated bond yields.
- Investors seeking stable income and lower levels of volatility should prioritize shorter-dated issuance, with allocations across a global opportunity set offering the potential for added diversification against riskier assets.
- With central banks likely having to respond to bouts of accelerating inflation, investors should consider exposure to variable-rate segments such as securitized and private credit.
When insights are shared across investment teams, at times, a clear consensus emerges. This report marks the first in a new series highlighting Janus Henderson’s high-conviction views – ideas where alignment across our investment teams signals a compelling opportunity.
Recent discussions across our corporate bond, securitized, and macro teams have identified short-duration fixed income as a high-conviction theme. We see a convergence of secular and cyclical forces – alongside supportive market dynamics – creating a favorable backdrop for shorter-duration exposures over the medium term.
High-conviction views reflect a strong belief in the potential for superior risk-adjusted returns. That said, market volatility can lead to periods of underperformance, and shifting economic conditions or external shocks may challenge the underlying thesis. Even so, our base case remains clear: Short-duration fixed income is a compelling allocation that we believe investors should actively consider.
Download the PDF to read the full paper.
Related insights
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. 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.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
Marketing Communication.
Important information
Please read the following important information regarding funds related to this article.
- An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
- When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise (or are expected to rise). This risk is typically greater the longer the maturity of a bond investment.
- Some bonds (callable bonds) allow their issuers the right to repay capital early or to extend the maturity. Issuers may exercise these rights when favourable to them and as a result the value of the Fund may be impacted.
- The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
- When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
- The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.