Investment Desk Bulletin

05 April 2017

Fixed Income: Opportunities as US rates rise

IDB 05 04 17

By Craig Shute

In this week’s IDB, we discuss fixed income market performance during the first quarter of the year and London & Capital’s strategy for the market going into the summer months. Our opportunistic approach and strategic asset allocation should continue to deliver the returns we have enjoyed for the first quarter of the year.

Global growth momentum remains strong and global monetary conditions are still highly accommodative. In the US, the Fed is predicted to raise rates 3 or 4 times in 2017.

For London & Capital, our focus remains on Financials, High Yield, selective Emerging Markets and selective Investment Grade bonds.

Our view for Financials is largely unchanged from the end of 2016 and remains our key conviction. Increased regulation means balance sheets look cleaner and stronger. In terms of cyclical dynamics, stronger economic growth should help the operational performance of US and global banks.

High Yield corporate bonds remain a focus due to low default rates, low refinancing risks and high cash balances. This sector is the strongest it has been for a while.

Emerging Market bonds have benefited from the selective positioning in Q4 2016. There is lower external vulnerability due to a more domestic focus. US trade protectionism and the USD need to be monitored closely.

Investment Grade bonds are experiencing low refinancing risk, high cash balances and good interest cover; with sectoral selectivity we continue to focus on this asset class.