Strategic Fixed Income: concoction of stress factors
6 minute watch
An unhealthy concoction of factors are creating a classically late-cycle feel in the markets. In a challenging time for bond managers, John Pattullo, Co-Head of Strategic Fixed Income, simplifies the conundrums and shares his views.
Key points:
- While secular trends have remained entrenched, the last two years have been characterised by a reflation trade, primarily driven by China reflating the world in 2015-16
- There is a divergence in equity markets – US growth equities versus European value
- There is a clear contradiction in the narratives from the bond and equity markets
- John believes the technical breakout in yields is more of a false dawn
- John also believes the unhealthy concoction of factors will prove to be a buying opportunity for bonds in a few months’ time
Glossary:
DurationA method of estimating a bond’s price volatility, expressed as a number of years, measured in terms of the weighted average of all the bond’s remaining cash flows (both coupons and principal). The larger the figure, the more sensitive it is to a movement in interest rates. Fed
An informal name for the US central bank – the Federal Reserve Bank; also for the Federal Reserve Board or the Federal Reserve System. High yield bond
Corporate bonds rated below investment grade (BBB-/Baa3) by major credit rating agencies such as Moody’s or Standard & Poor’s (S&P). The typical high yield issuer has a long-term credit rating of BB/Ba2 or lower. Santa Claus rally
A rise in stock prices in December, usually in the final week
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.
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