Cross Asset Research

Lyxor Asset Management

Fixed Income: Temporary Weakness or A New Reality?

23 Oct 2018


Key highlights


A more challenging environment as central banks call a halt to quantitative easing

• Global economic activity continues to strengthen and inflation starts to heat up

• Central banks are inching towards normalisation

• Pushing sovereign yields higher, and affecting bond portfolio valuations


Corporate and EM yields impacted by idiosyncratic themes

• Corporate and EM yields EM corporate and sovereign bonds were hit by a strong USD

•  European High Yield (“HY”) suffered from political uncertainty and exposure to the banking sector

•  Stronger oil prices helped soothe U.S. HY performance despite high corporate debtpacted by idiosyncratic themes


Where to seek fixed-income opportunities?

• Prefer short duration and floaters on U.S. Treasuries

• EM debt with a cautious issuer selection as risks are more idiosyncratic than systemic

• EU and U.S. HY papers are attractive for their carry

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