At GAM Investments’ latest Fixed Income Meeting, held on 6 April, our managers commented on rising interest rates, higher treasury yields and the recent performance of US and emerging market credit.
Jack Flaherty - US Credit
We continue to believe the US will make a strong economic comeback. We are certainly seeing a V-shaped recovery in the service sector, which is recording the largest level of growth in half a century. Unemployment continues to be slack, sticking at circa 6%. In the credit markets, metrics are recovering. Estimates suggest the market will see significantly more ‘rising stars’ than ‘fallen angels’ in 2021. The US high yield market had a decent Q1 relative to other fixed income markets. Overall, we remain positive on risk assets but are cautious given rising rates and higher treasury yields.
Paul McNamara - Emerging Market Rates
EM local currency debt has performed poorly year-to-date, hurt by a stronger US dollar, higher treasury yields and slower vaccination progress compared to developed markets, including Europe which has had its own Covid-19 vaccine struggles. Hard currency EM debt has also weakened, in line with broader credit markets. In general, while EM assets appear attractively priced it remains difficult to see a potential catalyst on the horizon which could lead to some value being realised. More specifically, after recent volatility in Turkey, we are also cautious on Russia at present given the build-up of military forces in eastern Ukraine. Whether this is sabre-rattling or part of an attempt to intervene more aggressively militarily remains to be seen, but we remain watchful for any escalation of tensions.
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.