For global fixed-income research teams and their clients, the future is now.
While 2020 brought unprecedented market fallout and historic monetary and fiscal policymaking, credit investors are looking ahead to post-pandemic realities amidst busy and complicated markets, according to the top providers of analysis to the buy side.
“If 2020 was about understanding the investment and operational fallout from the pandemic, 2021 has been about grappling with what the post-pandemic world will look like, what has changed forever more, and where we might see some reversion to pre-pandemic norms,” said Stephen Dulake, JPMorgan Chase & Co.’s global head of credit, securitized products, and public finance research.
Despite weakness in global emerging markets and China’s high-yield real estate market, it has been “a good year” for credit overall, according to Bank of America’s head of global fixed income, currency, and commodities research Michael Maras.
“If you think from where we started, we obviously had fantastic returns at the end of 2020, [and] investors were increasingly concerned about fixed income returns,” he said. “Investors look at emerging markets and high yield in particular as indicators for potential market turning points. But although emerging markets didn’t have a good year in 2021, high yield in developed markets has remained resilient and surprised a lot of people by delivering positive returns.”
The main reasons for this resiliency, according to Maras, are historically low default rates and low real interest rates. As fixed-income investors focused on beating inflation and real rates became increasingly negative, the investors decided to stay in credit. “That was the big surprise,” said. “Negative real rates helped keep funds in credit markets.”
Luis Oganes, JPMorgan’s head of currencies, commodities and emerging markets research, emphasized the role of global policy in credit markets. “Differentiation in the mix of inflation and growth and the central bank policy responses to this scenario across developed and emerging market economies during 2022 will create a fertile macro backdrop for fixed-income markets in many years,” he said. “Relative value selection across assets will require careful differentiation between ‘good hikes’ and ‘bad hikes’ by central banks around the world. This will be a challenge but also an opportunity for our fixed-income research team to continue to differentiate itself from the rest.”
And differentiate itself it has...