Market Pulse
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mars 19, 2020
Fixed Income Portfolio Update
 

Market Pulse

Fixed Income Portfolio Update

Fixed Income Portfolio Update

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mars 19, 2020

 
 

The following update was presented by Michael Kushma, Chief Investment Officer of Global Fixed Income, and Richard Class, Head of Product Development for EMEA and European Multi Sector Strategies, and a Portfolio Manager, on 19 March 2020.                     

Key Points

  • The last few days in the markets have been unprecedented, as government bonds (risk free assets) have sold off at the same time as risky assets (equities, credit, EM). 
  • We have also seen tightening conditions in the money markets and cross currency funding.
  • The world wants more cash, especially in US dollars.
  • Government bonds are the easiest thing to sell, hence their recent poor performance.
  • The back-up in yields is also being driven by fears of higher issuance to finance substantial fiscal support.
  • The consequence for portfolios is that duration in portfolios is currently not working as a differentiator of risk.
  • The crisis is also having a material impact on credit sectors where demand has collapsed.
  • An active approach to credit is vital in the current market conditions. We are assessing which companies in High Yield are “money good”.
 
 

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There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and may therefore be less than what you paid for them. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. Mortgage- and asset-backed securities are sensitive to early prepayment risk and a higher risk of default, and may be hard to value and difficult to sell (liquidity risk). They are also subject to credit, market and interest rate risks. Certain U.S. government securities purchased by the Strategy, such as those issued by Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the U.S. It is possible that these issuers will not have the funds to meet their payment obligations in the future. High-yield securities (“junk bonds”) are lower-rated securities that may have a higher degree of credit and liquidity risk. Public bank loans are subject to liquidity risk and the credit risks of lower-rated securities. Foreign securities are subject to currency, political, economic and market risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Sovereign debt securities are subject to default risk. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk).

 
michael.kushma
Chief Investment Officer of Global Fixed Income
Global Fixed Income Team
 
richard.class
Head of Product Development for EMEA and European Multi Sector Strategies, and a Portfolio Manager
Global Fixed Income Team
 
 
 
 

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