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360°: Dissonance, dampening and diversification

Insight
14 June 2022 |
Active ESG
The mark of a great manager is knowing when and how to exploit the dissonance between the news flow and market performance. In this latest 360°, our fixed income team consider recent market moves and how bond investors might best respond.

Fast reading

  • Market value: A first-quarter selloff has improved value and offered more upside. In public credit the US outperformed Europe, while energy benefited but telecoms and broadcasting suffered.
  • Economic outlook: With the war in Ukraine inflicting a stagflationary shock on the global economy, central banks risk being caught between a rock and a hard place.
  • Financials: Higher inflation means higher interest rates, which are fundamentally positive for the financial sector. With this in mind, the current vintage of financials looks broadly attractive.
  • Credit fundamentals: With margins and cashflow under pressure, deleveraging is likely to slow. This urges caution on fundamentals, but global default rates should stay relatively low this year.
  • Leveraged loans: Despite recent developments, European leveraged loans were relatively robust in Q1 2022. Key indices outperformed high yield bonds in both Europe and North America.

360° - Dissonance, dampening and diversification

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