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.
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.
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Important information
Please read the following important information regarding funds related to this article.
- Repayments from underlying loans are used to repay CLO securities after a specified period, but the timing is uncertain. Faster repayments can lead to early prepayment of securities trading above par, causing mark-to-market losses and forcing reinvestment at lower yields, reducing income. Slower repayments extend maturity, which can also result in losses. CLOs and callable securities may be redeemed early by issuers or equity holders, creating reinvestment challenges and potential income decline.
- Losses could be incurred if a counterparty became 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.
- Securities 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.
- Collateralised Loan Obligations (CLOs) are investments backed by pools of corporate loans. They carry risks from both the loans and the structure of the CLO. Risk varies by tranche, and credit ratings are not guarantees— even highly rated tranches can lose value in stressed markets. Key risks include liquidity, interest rate changes, credit defaults, and uncertainty around repayments.
- The performance of the sub-fund’s investments in CLOs will depend in part upon the performance and operational effectiveness of the managers of the CLOs. The sub-fund will invest in CLOs which are subject to management and performance fees charged by the managers of the CLOs. These are in addition to the fees charged to the sub-fund.
- Derivatives may be used with the aim of reducing risk or managing the portfolio more efficiently. However, this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital. If this happens or the market perceives this may happen, the value of the bond will fall.
- The Company may use options for efficient portfolio management and to increase income. Options can be volatile and may sometimes result in loss of capital.
Specific risks
- An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital. If this happens or the market perceives this may happen, the value of the bond will fall.
- Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
- Derivatives may be used with the aim of reducing risk or managing the portfolio more efficiently. However, this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- Securities 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.
- Losses could be incurred if a counterparty became 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.
- Collateralised Loan Obligations (CLOs) are investments backed by pools of corporate loans. They carry risks from both the loans and the structure of the CLO. Risk varies by tranche, and credit ratings are not guarantees— even highly rated tranches can lose value in stressed markets. Key risks include liquidity, interest rate changes, credit defaults, and uncertainty around repayments.
- Repayments from underlying loans are used to repay CLO securities after a specified period, but the timing is uncertain. Faster repayments can lead to early prepayment of securities trading above par, causing mark-to-market losses and forcing reinvestment at lower yields, reducing income. Slower repayments extend maturity, which can also result in losses. CLOs and callable securities may be redeemed early by issuers or equity holders, creating reinvestment challenges and potential income decline.
- The performance of the sub-fund’s investments in CLOs will depend in part upon the performance and operational effectiveness of the managers of the CLOs. The sub-fund will invest in CLOs which are subject to management and performance fees charged by the managers of the CLOs. These are in addition to the fees charged to the sub-fund.