Altaf's Perspective - Fixed Income Outlook for 2022 Revisited
We’ve reviewed our 2022 Fixed Income Outlook. As the Russian/Ukraine conflict continues, our position remains intact – with some caveats for institutional investors. Altaf Kassam and Des Lawrence share their insights.
Video content has been blocked in accordance with your cookie settings. You can access this feature by accepting all cookies or adjusting your cookie settings below.
Build A Better Bond Portfolio Where to Look, What to Do in 2022 — Revisited Des Lawrence Senior Investment Strategist
Investment Strategy & Research EMEA
Speaker: Altaf Kassam, EMEA Head of Investment Strategy & Research
The Muslim, holy month of Ramadan is famously a time for fasting, but it's also a time for reflection. And when I look back over the last year to the previous Ramadan, it's clear that the world has changed a lot since then. And the world of investing has changed a lot too, especially for fixed income as an asset class. Now our base case is still for GDP growth to be positive, but we think that it's going to be closer to trend rather than above trend, which is what we'd thought earlier on in the year. And we do think inflation is eventually going to come down. But again, we do think that it's going to stay higher for longer now in 2022, before starting to come down in 2023. We also think that there's too many rate hikes being priced in by the market and that these aren't all going to come to pass. Eventually central banks are going to bump up against lower growth and that's going to cause those rate hikes to be dialled back. But we have seen at the same time, the relatively rare event of an issuer being ejected from the emerging market debt index. And that's really brought to the fore for a lot of investors, the risks that are in a lot of riskier investment products in fixed income. For example, emerging market debt, and also high yield, where we see corporations starting to feel the effects of inflation as well as supply chain pressures. Now we've remained positive on both of those asset classes, but we know that investors are really starting to think about the risk and return trade off of higher yield versus the specific risks that I mentioned before. So a lot of this lies in the hands of inflation and whether the infamous wage price spiral is going to come to pass and how much corporations will be able to pass on the effects of higher prices and the supply chain pressures through higher prices, in other words, how much they'll be able to sustain their margins.
So what to do? Well, we still do think that there's value at the short end. As I said, we think there's been too many rate hikes priced in, but you're subject there to short term inflation noise. Over the medium to long-term, again, we do still continue to favor emerging market debt and high yield, but we have to bring to bear, bring to mind rather those specific risks that I mentioned before. Finally, long duration treasuries do still play a good role. They haven't worked so far in this inflationary environment that we've seen over the last few months, but if we start coming up against lower growth and worries about policy mistakes and eventual recessions, then we believe they will be the solid hedging asset that they have been in the past. If you do want more information on this, please do look at our updated fixed income outlook. Ramadan Mubarak.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This video is provided for informational purposes only and should not be considered investment advice or an offer for a particular security or securities.
The views and opinions expressed by the speaker are those of his or her own as of the date of the recording, and do not necessarily represent the views of State Street or its affiliates. Any such views are subject to change at any time based upon market or other conditions and State Street disclaims any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of State Street. Neither State Street nor the speaker can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation. This video cannot be used for commercial purposes and not all products and services in this video are available for investments in your region.
This video contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors’ express written consent.
Past performance is not a guarantee of future results. Investing involves risk including the risk of loss of principal.
Bonds generally present less short-term risk and volatility than stocks but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
Images of NYSE Group, Inc. are used with permission of NYSE Group, Inc. Neither NYSE Group, Inc. nor its affiliated companies sponsor, approve of or endorse the contents of this program. Neither NYSE Group, Inc. nor its affiliated companies recommend or make any representation as to possible benefits from any securities or investments.