Summary
THE ESSENTIAL
The ongoing slowdown in global trade will weaken global GDP growth further in 2020 – especially in advanced economies skewed towards the manufacturing sector – but a full-blown recession is unlikely, in our view. This situation will encourage policymakers to finally add fiscal stimulus to the policy mix, possibly extending the economic and credit cycles. Monetary policy is unlikely to become much more accommodative and market expectations will have to adjust, likely driving bond volatility higher with a possible bottoming out of core bond yields.
In this environment, fixed income investors should, firstly, build allocation to exploit opportunities wherever available and get the most out of Euro and a robust ‘core’ global aggregate bond markets. A flexible and well diversified approach is best suited to dealing with possible diverging scenarios that will become clearer in the coming months.
Secondly, as core bond yields should stay low, the search for income will remain a key theme, but will require deeper scrutiny of markets. Investors should seek to put in place dedicated exposures to higher-yielding segments (HY bonds, subordinated financial bonds, a continuum between private and listed debt). In a late-cycle environment, a strong focus on selection and liquidity management will be key to protecting investors in case of deterioration of economic conditions and rising idiosyncratic risks.
This publication combines views from our global teams of portfolio managers, economists, strategists and Investment Insights specialists with the aim of providing our ideas for investing in fixed income markets over the next few months.
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