Key takeaways:
- Investors may need to look beyond headline yields and focus on where fixed income offers attractive spread per unit of volatility, downside mitigation, and resilience.
- From an investment perspective, traditional fixed income can still play a useful role in multi-asset portfolios, but the mix of exposures matters more in a higher-inflation and higher-rate environment.
- Active fixed income investing remains important with tight spreads and differentiated regional opportunities requiring careful security selection and disciplined risk management.
IMPORTANT INFORMATION
Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss.All Articles
Artificial intelligence (“AI”) focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm.
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.
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.
Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.
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.
Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.
Securitised 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.
Volatility measures risk using the dispersion of returns for a given investment.
Footnotes and Definitions
1 Bloomberg, J.P. Morgan EMBI Global Diversified Index yield range, year-to-date to 31 July 2026. Yields may vary and are not guaranteed.
The J.P. Morgan EMBI Global Diversified Index (EMBIGD) tracks liquid, US Dollar emerging market fixed and floating-rate debt instruments issued by sovereign and quasi-sovereign entities.
Alpha Risk-adjusted excess return generated through investment skill, security selection, or asset allocation decisions rather than market movements.
Carry The return generated from holding an asset, typically through coupon income or yield, assuming market conditions remain unchanged.
Corporate credit Debt securities issued by companies to raise capital, including investment grade and high yield bonds.
Credit spread The difference in yield between a credit-sensitive bond and a government bond of similar maturity, reflecting the perceived credit risk of the issuer.
Diversification The practice of spreading investments across asset classes, sectors, regions or securities to help reduce overall portfolio risk.
Downside mitigation Investment strategies or portfolio characteristics intended to help limit losses during periods of adverse market performance.
Duration A measure of a bond’s sensitivity to changes in interest rates, expressed as the approximate percentage price change for a given change in yields.
Emerging market hard currency debt Emerging market debt issued in a widely traded international currency, typically the US dollar or euro, rather than the issuer’s local currency.
Fiscal policy Government decisions relating to taxation, spending and borrowing that influence economic activity and public finances.
Fixed income An asset class comprising securities that provide regular income payments and the return of capital at maturity, subject to the issuer’s ability to meet its obligations.
Floating-rate debt Debt securities whose coupon payments reset periodically based on a reference interest rate, helping reduce sensitivity to changes in market rates.
Fundamental research Analysis of economic, financial and issuer-specific factors used to assess the value and risks of an investment.
Higher-for-longer rates A market view that interest rates are likely to remain elevated for an extended period relative to recent history.
Inflation The rate at which the general level of prices for goods and services rises over time, reducing purchasing power.
Interest rate hedge An investment or strategy designed to reduce the impact of changes in interest rates on a portfolio.
Investment grade A credit rating indicating a relatively strong capacity to meet financial obligations and a lower risk of default than non-investment-grade issuers.
Multi-asset portfolio A portfolio that invests across multiple asset classes, such as equities, fixed income, cash and alternatives.
Multi-asset credit An investment approach that allocates across a range of credit markets and instruments to seek income, diversification and total return.
Private credit Non-bank lending conducted through privately negotiated loans and other debt instruments that are not typically traded on public markets.
Quantitative research Analysis that uses statistical, mathematical or systematic techniques to evaluate investment opportunities and risks.
Securitised assets Financial instruments created by pooling loans or other income-generating assets and issuing securities backed by the resulting cash flows.
Spread per unit of volatility A measure comparing the level of credit spread earned with the amount of price volatility or risk assumed by the investor.
Yield The income generated by an investment, usually expressed as an annual percentage of its current market value or purchase price.
View transcript
Tom Ross (TR): Thanks for joining us today. I’m Tom Ross portfolio manager on our fixed income team. I’m delighted to be joined by an expert panel today and to really discuss the future of fixed income investing. And we’re fresh off stage at our London event, and so we wanted to share some of the insights and perspectives that we’ve talked about.
I’m delighted to be joined by John Lloyd, Head of Multi-Asset Credit strategies, Mia Söderberg, Client Portfolio Manager on our emerging market debt team, and Mike Contopoulos, who’s our Head of Multi-Asset Macro investing.
So, John, we’re going to start with you. Obviously viewing the asset classes from a broad multi-sector perspective. How do you shape how you think about fixed income and what are the key considerations for investors?
John Lloyd (JL): Yeah, it’s a good question. I think in a tight spread environment like we are right now, you really want to maximize spread per unit of volatility and limit downside. So those are the two things we’re really focused on in the fixed income world. And really harvesting that yield that we have today.
TR: Okay. Mia, your team focuses on emerging market hard currency debt. So what are the main attributes and how do you see this developing in the future?
Mia Söderberg (MS): So emerging market debt hard currency is actually a very nice differentiator in any portfolio. And the perception of the asset class has through the last few years been a bit inaccurate because many see it as a very risky asset class, while today half of it is actually investment grade. And the other half is made up by higher yielding names, but many of them are improving, which means that you can find very compelling stories compared to developed markets where you very often have more stable or sometimes even deteriorating stories. And so there’s still potential in this asset class, which is a nice add. Also, you have a carry, which is very interesting. It’s about 6.5 to 7%,1 which gives you a bit of a buffer in this kind of turbulent world that we have nowadays.
TR: And Mike obviously you consider fixed income within the broader spectrum of asset classes. So how do you see people allocating to fixed income going forward?
Mike Contopoulos (MC): It’s a great question, Tom. You know, when we think about fixed income, obviously the market has changed a ton. And given our outlook for higher inflation and higher interest rates, you know I think investors are sort of curious as to how this will affect fixed income going forward in their portfolios and whether or not there’s even a place for it necessarily. I think that’s why you’ve seen private credit really take off as an example and sort of alternatives as a replacement for fixed income.
We actually think traditional fixed income is still really attractive within a multi-asset portfolio, but it’s how you take that exposure that matters. So you’re not going to necessarily use diversification, or rather use duration, anymore as diversification.
Instead, you may need shorter duration assets, floating rate debt, interest rate hedged products to manage fixed income going forward. So it’s not whether fixed income holds a place or smaller place in a portfolio, but rather what’s the makeup of that fixed income and how you’re using it I think investors need to consider.
TR: Thank you. Also, from my perspective, I’d echo what’s been said, but I’d also add as well, I think within fixed income whether it be within emerging markets, within other parts of multi-asset credit, there’s really some great opportunities for security selection also to deliver returns. Really making your portfolios work harder for you in this type of environment.
Now some of the questions we were asked focused on differentiated insights and positioning, what are your highest conviction views, for your areas of fixed income in the near future, say for the coming year? We’ll start with you, John.
JL: Yeah, I actually have two. One is a thematic investment across all the asset classes, and that’s AI. AI is fuelling a lot of the debt supply that we’re seeing and creating a lot of opportunities to generate alpha in the fixed income markets. So we have expressed, predominantly through securitized and the high yield markets, and also avoiding some other markets like IG where you’re seeing a massive amount of supply that’s coming into the market, where we think spreads will actually widen. And then across asset classes we prefer securitized right now, you’re getting better spread per unit of volatility and spreads are a little wider against history in securitized.
TR: Mia?
MS: So we like the high yielding part of the universe at the moment. You find very many interesting names. We have Argentina for example, who is on a nice trajectory with a more stringent fiscal policy nowadays. So that looks interesting. We have an overweight in Argentina. And we also like Venezuela, it’s interesting since they have so many natural resources, and after they took out Maduro and the support from the US, it actually looks quite compelling.
We also like quite stronger credit stories, not as sensitive as maybe Argentina and Venezuela, like Costa Rica. It’s one of the most sustainable countries in the world, and they are knocking on the door to investment grade. So that also looks really interesting. Going forward we think that the geopolitical turbulence that we have from time to time has shown in recent years that EM has become more resilient. And usually when you have a high risk event, like the Iran crisis, the EM market takes a big hit. But recently we’ve seen that that’s not the case. It’s rather seen as something that you can differentiate away from the US and find other places to invest. And since the benchmark is so wide, you have 70 different countries to choose from. You can easily find interesting investment opportunities in that universe. And due to the resilience, it’s actually a very nice differentiator now.
TR: And Mike, for you?
MC: So I think just as much as what you want to own, you also have to think about maybe where you should be underweight at the moment. And given how tight spreads are, and there’s a great saying in fixed income markets, Tom, the path to hell is paved with carry. And that’s not to say we think there’s an imminent blow up about to happen with corporate bond spreads, but certainly spreads are tight.
And so we want to be underweight corporate credit here. But take advantage of corporate credit when spreads widen. And we actually think there’s going to be a great long term opportunity in corporate credit as the power shifts in a higher rate environment from the borrower to the lender. And so we think actually corporate credit will be attractive at some point. But today over the maybe the next 6 to 9 months is less so.
As an alternative, you want to be in slightly higher spread, you know, floating rate debt. Maybe in the securitized market. We think that offers a better opportunity today just given how tight spreads are in the corporate market.
TR: Great. And maybe, thanks for your comments there, maybe just to add upon to that as well. Obviously the importance we all put on risk management, on, you know, fundamental research combined with quantitative systematic research as well, but really understanding the themes, understanding the pockets of risk within these different markets in order to provide better outcomes going forward.
Great. Sadly that’s all we have time for today, so I’d just like to thank John, Mia and Mike for their time. And thank you for listening as well.
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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