Global Bonds: three big themes to shape the markets in 2019



​Andrew Mulliner, Portfolio Manager within Global Bonds, shares his thoughts on the risks and opportunities ahead for fixed income investors in 2019, which he believes revolve around three big market themes.

What are the key themes likely to shape markets in 2019?

We believe that the three big themes for the markets are global growth, trade wars and monetary policy.

Growth divergence between the US and the rest of the world has been a critical factor in driving currency and general risk moves. Much of the divergence of 2018 has been laid at the door of US fiscal policy. If pro-cyclical fiscal spending has indeed been the driver of last year’s growth divergence, and if the fiscal impulse will be receding in 2019, then next year should see a reversion back to trend and with it, a potentially more risk-friendly environment. However, with global growth (ex US) slowing into the end of 2018, there is the chance that a growth reversion to trend is simply too optimistic and investor concerns regarding the end of the economic cycle may well end up a material worry for the second half of 2019.

The evolution of the bubbling US-China trade war will also play a significant role in how markets perform next year. Any further escalation can act as a handbrake on global growth and investment sentiment for companies and markets. A more benign outcome could be a healthy tailwind for risk assets.

If 2018 marked the beginning of the end for extreme accommodative monetary policy, 2019 may well see that trend reach maturity with balance sheet growth turning negative and the real possibility that we see the end of negative interest rate policies. All this points to another year of increased financial market volatility and an adjustment for bond market participants.

Where do you see the most important opportunities and risks within your asset class?

As with the above, we expect 2019 will probably share some similar characteristics with 2018. Therefore, we believe an active approach will remain imperative for navigating and maximising opportunities in what will be a challenging investment environment.

It also means that investors need to have a realistic view of the total returns on offer, particularly in fixed income. As with 2018, 2019 may see another year of muted/negative returns from many fixed income asset classes as credit spreads and interest rates normalise after years of central bank suppression. Investors need to be crystal clear about not only what they own (and what they can expect) but also why they own it.

How have your experiences in 2018 shifted your approach or outlook for 2019?

At the start of the year it was our view that we were heading for, at the very least, a long-overdue slowdown, or soft patch, and we have certainly seen that. I felt that the first quarter of 2018 was as good as it was going to get in terms of global growth. Our response has been to focus on the stocks in our portfolios, and on further stock-picking.

Which themes have the potential to redirect markets in 2019? Download our Infographic to find out

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. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. 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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Janus Henderson Horizon Total Return Bond Fund

Specific risks

  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • Emerging markets are less established and more prone to political events than developed markets. This can mean both higher volatility and a greater risk of loss to the Fund than investing in more developed markets.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • Callable debt securities (securities whose issuers have the right to pay off the security’s principal before the maturity date), such as ABS or MBS, can be impacted from prepayment or extension of maturity. The value of your investment may fall as a result.

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