- Research Manager
- About Us
- My Account
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.
Fed not yet willing to declare victory on inflationContinue reading
Three themes (and what they mean) for income investorsContinue reading
Public CRE debt — Risk, opportunity, or both?Continue reading
Green horizons: How the shift toward sustainable finance may reshape fixed income marketsContinue reading
Monthly Market Snapshot — July 2023Continue reading
Economic and market forecast in six chartsContinue reading
Why cash won’t cut it for long: The case for bondsContinue reading
Fed not yet willing to declare victory on inflation
We think the Fed is done raising rates for this cycle, despite the likelihood that they are being overly optimistic about inflation. Read to find out why.
Three themes (and what they mean) for income investors
With several macro crosscurrents at play, Portfolio Manager Peter Wilke suggests that income-oriented investors not lose sight of the “big picture” in their quest for yield.
Public CRE debt — Risk, opportunity, or both?
Our experts explore the implications of the ongoing stress in the public CRE debt, or commercial mortgage-backed securities (CMBS), space for investors and analyze risks and opportunities for ratings-constrained insurers.
Green horizons: How the shift toward sustainable finance may reshape fixed income markets
Three sustainability trends have the potential to reshape fixed income markets, leading to a range of new opportunities for investors.
Monthly Market Snapshot — July 2023
A monthly update on equity, fixed income, currency, and commodity markets.
Economic and market forecast in six charts
This visual summary of Wellington Management’s 2023 Outlook captures insights on economic and market forces shaping investment results from specialists from across our investment platform.
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.
Commercial property values shrinking? No problem for big cities
We analyze the impact of declining office property values and outline the reasons why they believe large cities should be able to weather the storm of shrinking commercial property value.
What AI could mean for fixed income
Fixed Income Portfolio Manager Brij Khurana details the potential effects of artificial intelligence on the fixed income market.
How would emerging markets weather a “standard” recession?
Macro Strategist Gillian Edgeworth explores the potential impact of a developed market recession on emerging markets.
How to interpret the Bank of Japan’s latest policy shift
We analyse the wide-ranging investment implications of the Bank of Japan's latest policy shift.