- Research Manager
Skip to main content
- Funds
The 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. For professional, institutional, or accredited investors only.
Thus far in 2022, outright exposure to two primary fixed income risk factors — duration and credit spreads — has proved challenging. As a result, investors are increasingly seeking innovative and differentiated ways to protect their bond portfolios amid unprecedented market volatility.
Interestingly, from our fundamental factor-based perspective, there has been a consistent bright spot across global government bond and corporate credit markets: Momentum has proven to be a highly diversifying exposure on a year-to-date basis, which we think speaks to the persistence of the market environment during the first half of the year. In this brief note, we’ll focus on global government bonds, though we’ve seen comparable results for momentum in corporate credit.
In our framework, momentum within global government bond markets has been among the best-performing factors this year, in both absolute and risk-adjusted terms. In fact, the magnitude of the outperformance has reached historic proportions, with 2022 on pace to be a record year for the style in the post-GFC era.
In Figure 1, we highlight the year-to-date performance of our proprietary Rates Momentum factor through September 30. The factor returned nearly 6% while the broader global government bond market realized double-digit negative total returns.
How is this different from just highlighting an underweight to duration risk? It is true that recently momentum has generally been underweight most global government bond markets. However, in previous periods of heightened market volatility, such as the early days of the COVID-19 pandemic (March 2020), this style has shown the potential to provide downside protection to risk assets such as equities and credit. In these prior events, we observed momentum as being overweight duration risk at select sovereign curve points, which makes sense given the declining interest-rate trend at the time.
We believe a key benefit of utilizing a style-oriented fundamental factor framework is that it follows a rules-based process of naturally sorting through the market opportunity set. This may provide the potential for a more dynamic active risk profile, offering allocators an alternative solution that is less reliant on static traditional beta exposures.
Experts
Are US election probabilities now a critical driver of bond yields?
Continue readingOk, Boomer: How US generational wealth distribution could upend the economy and markets
Continue readingURL References
Related Insights
Are US election probabilities now a critical driver of bond yields?
Our expert argues that the US election remains a critical catalyst for the bond market given the contrast between both parties as it relates to supply side policies such as trade and immigration, and to policy differences around taxation and regulation.
Weekly Market Update
What do you need to know about the markets this week? Tune in to Paul Skinner's weekly market update for the lowdown on where the markets are and what investors should keep their eye on this week.
Financial Market Review
A monthly update on equity, fixed income, currency, and commodity markets.
Monthly Market Snapshot — June 2024
A monthly update on equity, fixed income, currency, and commodity markets.
Ok, Boomer: How US generational wealth distribution could upend the economy and markets
Fixed Income Portfolio Manager Brij Khurana discusses the implications of US Baby Boomers' wealth concentration in the event of a market decline.
Time for credit selection to shine
Fixed income investors continue to seek answers to an era of volatile rates. Large, static exposures to credit markets no longer cut it. Instead, a nimble and dynamic approach is more likely to create resilient and consistent total return outcomes.
Ideas for navigating a new era
Explore our latest views on risks and opportunities across the global capital markets.
Bond Market Outlook
Our fixed income experts assess how to capitalize on market volatility with a flexible and dynamic approach that leverages diverse high-yielding opportunities and manages risks carefully.
Looking beyond yield: rethinking your fixed income approach
In today's new market regime, any small changes in central bank policies could have outsized impacts on fixed income markets. Portfolio manager Connor Fitzgerald highlights how a dynamic, total return approach can navigate markets by focusing on optimising price return and capital preservation across market cycles.
Capitalizing on rate shifts: Parsing opportunities in the second half
Fixed Income Portfolio Manager Campe Goodman and Fixed Income Strategist Amar Reganti discuss how to capitalize on potential rate shifts in the second half of the year
Reframing fixed income portfolios: why bond maths makes the difference
It is easy to understand why fixed income investors tend to focus on yields. But investors who focus too much on yield may run the risk of overpaying for income and underestimating the impact of price volatility.
URL References
Related Insights
Financial Market Review
Continue readingBy
Brett Hinds
Jameson Dunn