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Changechevron_rightThe views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
Despite looming (and growing) economic recession risks, we see several potential opportunities in higher-yielding credit sectors (as shown in below chart). While these excess return forecasts assume that spreads will revert to their historical medians, our slightly more bearish forecast incorporates some degree of spread widening given our expectation for an economic slowdown. In our view, some of the most compelling opportunities in fixed income credit sectors include:
Conversely, emerging markets (EM) USD-denominated sovereign spreads remain in the tightest quintile relative to history. As a result, we think it is prudent to consider reducing EM sovereign exposure in favor of the opportunities outlined above.
Looking ahead, we believe that bouts of volatility in 2024 could generate greater idiosyncratic dispersion and create better entry points to add credit exposure. Despite economic and monetary policy uncertainty, we believe the potential upside from earning today’s historically high yields and being ready to take advantage of credit market dislocations as they arise outweigh the possible risk from rates moving higher. In our view, various dislocations in higher-yielding credit markets could offer the most compelling opportunities for asset owners in 2024, with a goal of pursuing yield and total return in a manner that is as efficient and risk-controlled as possible. We also think it is important for investors to stay flexible and nimble in an uncertain market landscape.
Experts
Related Fund
Credit: Better opportunities to add risk on the horizon
ur experts review current macro dynamics impacting the bond market and discuss where they see opportunities and risks across credit sectors.
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
Credit market outlook: Expect greater opportunities in back half of 2023
Against a backdrop of elevated recession risks and banking-sector stress, Fixed Income Portfolio Manager Rob Burn identifies relative-value sector opportunities in the credit market.
Will higher rates sap US consumer spending?
Higher interest rates have increased borrowing costs. Could a consumer-led US recession be looming? Fixed Income Portfolio Manager Kyra Fecteau sees three factors that may help mitigate the impact.
Deep and diverse: Welcome to today’s Asia credit market
Two of our Singapore-based experts on Asia credit discuss the market's key features, along with how it's evolved and is likely to continue doing so.
Sector rotation opportunities for nimble credit investors
Following a credit market rally, Fixed Income Portfolio Manager Rob Burn still sees value in higher-yielding sectors but believes investors should stay nimble.
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