Quarterly insight from our fixed income teams to help clients navigate the risks and opportunities ahead.

Themes in Focus (October 2020)

Themes in focus

Key takeaways

  • Consumer confidence in their income outlook will be critical to maintaining a V-shaped recovery; much corporate borrowing has been precautionary or bridging finance that should help to lessen defaults, allowing companies to repair balance sheets in 2021.
  • Average inflation targeting by the US Federal Reserve (Fed) is more than just a cosmetic change as it should help limit the risk of a second ‘taper tantrum’; however, it is questionable whether the US or other major economies will suffer inflationary pressures beyond those attributable to temporary base effects.
  • Monetary policy is likely to face diminishing returns but remains pivotal in keeping financing costs low and depressing volatility; it is this suppression of volatility that will be key to tighter spreads.

Insights From Our Global Teams


Head of Global Bonds Nick Maroutsos expresses concern that monetary policy focused on financial markets will do little to ignite the growth needed for the economy to recover from recent weakness.


Head of US Fixed Income Greg Wilensky and Portfolio Manager Michael Keough discuss their outlook for US inflation after the Federal Reserve’s policy change, and its impact on US bond markets.


Jenna Barnard, Co-Head of Strategic Fixed Income, discusses how the suppression of volatility in interest rates by major central banks has spread the Japanification phenomenon to the US.


Seth Meyer, Corporate Credit Portfolio Manager, and Esther Watt, Client Portfolio Manager, explore the default outlook for high yield bonds and the risks and opportunities this presents.

Taper tantrum: Markets’ reaction following the US Federal Reserve Chairman’s comments in May 2013, which suggested that the US was considering tapering (slowing down) the rate of its bond buying programme (quantitative easing).

Spread/credit spread: A measure of how much additional yield an issuer offers over comparable “risk-free” assets such as U.S. Treasuries. In general, widening spreads indicate deteriorating creditworthiness of corporate borrowers, tightening spreads are a sign of improving creditworthiness.

High yield bond: A bond that has a lower credit rating than an investment grade bond. Sometimes known as a sub-investment grade bond. These bonds carry a higher risk of the issuer defaulting on their payments, so they are typically issued with a higher coupon to compensate for the additional risk.