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Weekly Manager Views: Fixed Income


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04 December 2020

At GAM Investments’ latest Fixed Income Meeting, held on 1 December, four of our investment specialists discussed their views on current market conditions and shared thoughts on the year ahead.

Adrian Owens - Global Macro & Currency Fixed Income

Clearly markets received a boost in November, largely from positive vaccine news. However, we believe there is still a need to err on the side of caution. Near-term economic data could be somewhat disappointing, particularly Q4 2020 GDP results. Weakness may extend into Q1 2021. However, generally the feeling is the optimism seen in November can continue to drive the markets. Risk assets continue to outperform. Once mobility picks up again, alongside a vaccine rollout, pent-up consumer demand is there. Psychological factors are likely to play a part, with a consumer mentality of ‘get out while you can’ in case there are further lockdowns / a new virus leading to the spending of a large amount of savings built up during the year.

Tom Mansley - Mortgage-Backed Securities

The US housing market remains strong. We continue to see record demand for residential property and lack of supply, with below average construction levels. This supply / demand imbalance is supportive for house prices. At the same time, houses remain affordable and most mortgages are locked in with very low interest rates. Payments are manageable and consumer balance sheets are strong. In the commercial market, though, the picture is not so positive; commercial loans (retail / office buildings / hotels) are in bad shape. In Manhattan, for example, the office occupancy rate remains circa 15% and this percentage is not likely to improve over the winter. If a vaccine is 70-80% effective, we do not expect a mass return to the office environment and most companies are looking to shrink their office footprint regardless.

Florian Komac – European Credit

Credit spreads have continued to tighten across the board. In the investment grade (IG) segment, it is only the leisure sector which remains in negative return territory year-to-date. In the high yield (HY) space, both leisure and services remain in the red on a year-to-date basis. Prices are moving in the right direction, but we remain cautious; many purchasing managers’ indices (PMIs) are down to crisis levels again as a result of lockdowns. Looking ahead to 2021, on the political front, the incoming Biden administration in the US will need to tackle climate change head on. We think his policies are likely to benefit some companies and hurt others. Meanwhile, we continue to wait for a Brexit solution.

Jack Flaherty – US Credit

Credit has continued to rally, including the triple-C segment of the market which, despite remaining in negative return territory year-to-date, has seen big gains the last part of the year. There are various assumptions surrounding vaccine approvals and the speed of distribution. One thing is certain; there is a large amount of pent-up consumer demand. With the incoming Biden administration, we expect to see another stimulus package plus increased spending on infrastructure. We believe the US economy is likely to prosper in 2021 beyond the current consensus.

Important legal information
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. December 2020.