After almost a decade under the spell of the world’s central banks, fixed income markets are set to reawaken in 2018.
Central bankers around the globe are finally loosening the reins of monetary policy, reversing the quantitative easing that has kept interest rates low and injected cash into the economy.
“We have never been through a situation where central banks have provided this amount of liquidity before,” said Jim Reid, Deutsche Bank’s global head of fundamental credit strategy. “Now they are taking it away, I don’t think you can be certain about anything in fixed income markets.”
The markets may be in flux, but investors can rely on some points of continuity.
For the eighth consecutive year, money managers chose JPMorgan Chase & Co. as the top provider of European fixed income research.
The U.S.-based bank has earned the number one spot every year since Institutional Investor first began compiling the All-Europe Fixed Income Research Team in 2011. This year, JPMorgan analysts ranked in 18 of the 22 sectors included in the survey, including wins in the investment grade credit and economics and strategy categories.
As reigning champion, JPMorgan leads a top five that is identical to last year’s: Bank of America Merrill Lynch placed second, Deutsche Bank came in third, Barclays ranked fourth, and Citi claimed fifth.
The standings were based on a survey of 680 bond and credit specialists at 381 asset management firms representing $6.2 trillion in European fixed-income assets. Respondents chose their favorite research analysts in each sector, with votes for individual analysts at each firm combined to produce the winning analyst teams.
Stephen Dulake, global head of credit research at JPMorgan, attributed his firm’s success to remaining consistent even in uncertain markets beset by changes like monetary policy reversals and regulatory upheavals.
“While we are aware of our regulatory obligations, our modus operandi is to cause as little disruption to our investor client franchise as possible,” he said.
Tom Gibney, a high-yield credit analyst at BofA Merrill Lynch whose team placed first for their coverage of retailing and consumer products firms, said his firm’s response to uncertainty has been to “ensure we focus on the situations that are most likely to impact investors’ returns, either in view of their size or their volatility.”
This year, Gibney also placed first in his sector in an individual-based ranking that was compiled for the first time this year. Unlike the traditional team-based ranking, this new ranking does not combine votes for analysts from the same firms, meaning that individual analysts stand alone.
While JPMorgan continued to dominate in the team-based ranking, it fared less well in the analyst-based ranking, placing third with nine ranked analysts. Instead, BofA Merrill Lynch and Deutsche Bank tied for first with 14 analysts apiece. No JPMorgan analysts ranked first in the individual analyst ranking, despite earning three first-place positions in the team-based ranking.
These results suggest that JPMorgan’s continued success in European fixed income research has been the result of a strong roster of collaborative analysts, as opposed to individual stars.
Meanwhile, BofA Merrill Lynch and Deutsche Bank each earned six first-place spots in the analyst-based ranking. BofA Merrill Lynch split its six top positions between two categories, high-yield credit and economics and strategy. These included wins for high-yield health care bond coverage and asset-backed securities strategy.
Deutsche Bank’s six first-place finishes came primarily in the economics and strategy category, with Reid winning in four separate sectors: economics, fixed-income strategy, high-yield strategy, and investment-grade strategy.
In the year ahead, Reid said he expects a great deal more volatility, but noted that there is little certainty beyond the end of 2018.
“This is a journey into the unknown,” he said, “but our view is that yields go higher.”