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.
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