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Weekly Manager Views: Fixed Income

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At GAM Investments’ latest Fixed Income Meeting, held on 18 May, two of our managers shared their views on the US housing market and US corporate debt.

21 May 2021

Gary Singleterry – Mortgage-Backed Securities (MBS)

The US housing market remains a bright spot amid the Covid-19 pandemic and the ongoing economic reopening only exacerbates the country’s healthy housing situation. House prices increased by 1% on average in March and are 11-12% higher over a 12-month period. Interestingly, it is not cheap credit providing the increase, but lack of supply. The cost of building houses is also high due to the recent rise in lumber prices. We are seeing increased call activity where the owners of the call rights for existing MBS are exercising their rights to purchase the mortgages out of the deals. They are doing this because the mortgages are valuable due to the high creditworthiness and attractive yields; when this happens, it generally helps the yield of securities because many of them are priced at discounts to par. We expect this activity to increase going forward.

Jack Flaherty – US Credit

The US economy is opening up. While the pace of the vaccination rollout has slowed somewhat, the direction of travel remains clear. Even the more cautious states are lifting mask mandates and social distancing rules. This is good news for the tourism industry which is seeing strong demand for vacations, as well as the retail space where recent earnings releases have beaten expectations. However, despite the progress we continue to see balance sheet caution from many companies who are waiting for the economic picture to return to normal. We see value in the BB rated corporate bond space in particular. It is worth noting that the number of rising stars (companies promoted to investment grade from non-investment grade) has outpaced the number of fallen angels in 2021, marking a sharp reversal of 2020.

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.

Gary Singleterry

Investment Director

Jack Flaherty

Investment Director

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