Search this website. You can use fund codes to locate specific funds

Weekly Credit Insight

Chart of the week: a shot in the arm prompts a tug of war

Markets have received a boost from the US election result and positive developments surrounding a coronavirus vaccine over the past few weeks. Amid this flurry of good news, different segments of the global fixed-income market have responded in a variety of ways.

Both high-yield and investment-grade credit yields recently touched all-time lows (see figure 1). Investors are increasingly wondering whether it would be more accurate to term junk bonds ‘higher yield’ credit as spreads sank back towards 450bps this month (they reached almost 1,100bps at the peak of the March sell-off).

Figure 1. Yields hover at all-time lows

Source: ICE Bond Indices, as at November 2020. Past performance is not a reliable indicator of future results.

These ultra-low yields have been driven by unprecedented levels of central-bank support, a large increase in savings and the reach for spread – and rising demand for fixed income – that has taken place in the context of an uncertain macroeconomic backdrop.

There are clearly multiple forces pulling the market in opposite directions. The upcoming vaccine, outcome of the US election and hopes for a cyclical recovery are providing some upside. But on the other hand, lockdowns will continue to depress economic activity and exacerbate volatility.

It has been a year like no other – and one that will have far-reaching implications for the structure of the fixed-income universe. As yields sink ever lower, the ability to deliver alpha becomes even more important – something we believe can be achieved through a combination of top-down risk allocation, bottom-up security selection and a consideration of environmental, social and governance factors.

More Insights

No time like now: why investors are moving on ESG
We take a trip down memory lane and into the future with ESG...
Can palm oil ever be considered sustainable?
With monocropping one of the main causes of deforestation, palm oil production needs to change. Rather than staging a boycott, responsible investors should engage with companies across the supply chain to encourage the adoption of globally recognised certification standards
Leading the way in climate-related engagement: Federated Hermes achieves A+ score in InfluenceMap study
Federated Hermes ranks among the top five firms in a study focusing on the climate-related engagement efforts of the world’s 30 largest asset management groups.
Weekly Credit Insight
A Lift-off in rates focuses attention on security selection and an unconstrained approach
A changing climate in fixed income: 360°, Q1 2021
In a sustainability-focused edition of 360°, we explore how sustainable finance shifted from a niche corner of the market to a position of prominence.
Credit Pulse: market update - 12 February 2021
What are our views on fixed income markets for the next coming months? How does the team prepare for the different possible outcomes?