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Weekly Manager Views: Fixed Income

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12 February 2021

At GAM Investments’ latest Fixed Income Meeting, held on 9 February, our managers shared their thoughts on emerging market currencies and the European and US high yield debt markets.

Paul McNamara – Emerging Market Rates

January was a risk-off month for emerging markets (EMs) overall, largely as a result of a stronger US dollar. We believe the outlook for the asset class remains positive and is solidly pro-growth. In the EM local currency space, the recent outperformance of the Turkish lira is notable. The currency has strengthened thanks to growing confidence that the central bank’s firm actions in late 2020 appear to be addressing the country’s economic imbalances. Turkey could also benefit significantly from a post-Covid-19 recovery as its economy is driven by hospitality and tourism.

Christof Stegmann – European Credit

The European high yield (HY) market appears attractive relative to the investment grade (IG) market, in our view, with average spreads of circa 320 bps over government bonds. Aggressive central bank buying continues in Europe, underpinning demand for credit and enabling corporates to refinance. It appears that the consensus view is for a more manageable Covid-19 situation, resulting in a strong GDP rebound later this year, higher consumer spending and a rise in inflation, leading to higher rates and steeper yield curves. However, multiple risks, such as virus mutations or issues with vaccines, could have a dramatic impact on economic recovery expectations and markets and therefore we believe caution is required.

Casey Goldmann, Jack Flaherty – US Credit

The US HY debt market is enjoying a strong start to 2021. We believe there is room for continued outperformance, helped by the low duration nature of the asset class which should offer protection against rising rates. Each month default expectations continue to be lowered, which is boosting sentiment for the whole sector. Triple C-rated bonds have continued to catch-up following significant falls in the first half of 2020. Energy names have performed well as of late, given the recent rise in oil prices. Spreads also tightened in the retail sector in January, helped by names capturing more digital sales.

Important legal information
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 of current or future trends. 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 securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.