We have been living for the past few years under an unprecedented regime of unconventional monetary policies. Abundant liquidity poured into developed economies has had a number of consequences on financial markets: very low and sometimes negative interest rates, inflation of asset prices under the pressure of investors starving for returns. The hunt for yield has pushed Bond prices upwards, probably translated into much more concentrated portfolios in some market segments, possibly leading to misallocation here and there.
What followed was a persistent decline in volatility and higher correlations across asset classes. By itself, this market regime is not enough to call for a turnaround anytime soon. However, we can argue that a long period of time with low volatility and high correlations could amplify market drawdowns.
Of course, nobody likes drawdowns. This is especially true when it comes to Fixed Income markets where there is no “risk-free” asset anymore and where a few basis points hike in rates could cancel out a full year of income.
Now that ultra-accommodative monetary policies have probably been having their days, especially amidst the current resynchronized economic cycle, market begs the questions:
- How would higher rates impact Bond valuations?
- How to adapt portfolios in order to cope with a potentially unfriendly environment?
In this context, we believe that Credit Continuum is an immediately applicable solution to address the next cycle. The Credit Continuum solution enables investors to make the most of the whole Credit spectrum including: Investment Grade, High Yield Bond investment and Private Debt. In addition, the Credit approach illustrates how we can adapt our portfolios to the current stage of the market cycle.
