Is fixed income hot again?
According to Fund Info, bonds and high yield were the two most searched for categories by wealth managers in Hong Kong and Singapore the last four weeks.
Harris also believes that investor interest in fixed income, particularly high yield, has picked up again this year.
“From 2015-2016, fixed income credit, high yield and emerging markets were really easy sells. In 2017-2018, my diary was totally empty. We got to the stage when the European high yield market was yielding less than 3%. That’s not high yield, right?”
However, interest started to pick up after the US Federal Reserve soften its rate hike stance and the European Central Bank decided not to increase interest rates this year. “Suddenly, fixed income is a hot asset class again.”
Interest in investment grade bonds remains low, however, with US investment grade yielding 3.5% and European investment grade yielding 1%, according to Harris.
Demand is for high yield bonds, where yields have gone up because of spread compression, she said. However, Harris only expects up to 5% returns in the asset class in the next 12 months.
Year-to-date, the return for the Bloomberg Barclays Global High Yield Index is 6.37%, according to FE data.
“We are going to struggle to get anything quite as brilliant as we’ve had in January and February because a lot of those spreads have reverted back to where they were at the end of the third quarter last year,” Harris said.
