If we look at the last thirty years, generally economic recessions and the main ones market crisis They generated disinflation shocks for the economy. Underlines it Mohammed Kazmi, Chief Strategist & Senior Portfolio Manager DI Union Bancaire Privée (UBP) Explaining that events such as the great financial crisis and the Covid-19 pandemic have led to a clear drop in nominal growth, with a lowering of both inflation and real growth.
Bond: Building a resilient portfolio
In clear contrast, the current economic cycle, Started with the reopening of the economies after the pandemic, it was subject to an inflationary shock rather than unflex and cannot be understood through the lens of the previous crises, explains the expert. This time, the growth of the United States remains robust, constantly exceeding its estimated potential rate of about 2%. The our scenario therefore presupposes a soft landing rather than a recession, supported by the force of consumers and a labor market that remains robust.
Kazmi then reports “Another remarkable change compared to pre-covid economic cycles: the persistent US tax deficit. Historically, this deficit followed a cyclical trend: it generally increased during recessions and decreased during growth periods. However, the trend was interrupted after the pandemic and the Congressal Budget Office provides for the next decade a deficit of about 7%. Although the new administration has the aim of reducing public spending, the budget deficit will return to the low -term amount in the short term “.
The View Ddi UBP
Greater support from tax policy in United States “makes the need for significant monetary loosening, thus allowing interest rates to remain higher. And a similar situation could also register in the Eurozone, where greater tax expenditure is clearly scheduled to meet the needs of defense and infrastructure “.
All this “It is ultimately positive for the fixed income, in what should allow investors to focus on Carry’s consequent opportunities. We maintain a long -term positive perspective on credit, which is supported by a solid growth trajectory that should keep default rates low. In the credit markets, we prefer the assets that offer a yield higher than the cash storage rates and the higher income activities, including high yield securities, whose fundamentals remain favorable. In addition, in the case of market shock, the Fed has the resources to support the economy by cutting rates aggressively, which should also limit the risk of reduction for credit “.
In terms of the construction of the portfolio, “A strategic change is needed compared to the traditional allocation in investment Grade corporate bonds At five years: the need for greater flexibility and resilience in the face of the evolving market dynamics and the new era for inflation and interest rates “is increasingly recognized.
By diversifying in other areas of the credit market, investors can obtain a better position from which to deal with potential volatility and capitalize on higher performance.
This approach – The expert continues – focuses on the reallocation of assets towards short -term short -term investment grade (FRN) securities and segments that offer a higher income, including High Yield. The short-term variable rate bonds (FRN) proved to be more defensive than a conventional investment grade portfolio, demonstrating a remarkable 5% supper -perance during the Sell-Off that took place with pandemic, together with an interesting Yield Pick-up. The performance of the FRN remains interesting compared to investment grade securities, also taking into account the expectations of the market for potential rates of rates by the Fed.
What strategies?
Investment Grade portfolios are increasingly replaced with Multisectoral income strategies. This approach offers a default risk comparable to a bond wallet with BBB rating, while offering a 2%Yield Pick-up. Multi -adjustment income allows you to invest in a wider spectrum, including bonds with BBB and BB rating, subordinate debt and securitized debt such as CollaTheralized Loan Obligations (CLO). Investing in various sectors allows investors to capitalize on the best opportunities, taking into account both assessments and fundamentals. CDS High Yield indices are attracting the interest of investors as they offer better liquidity in different market conditions compared to high yield obligations. In addition, Illiquidity costs typically associated with high yield bonds, with a consequent improvement in performance and historical supperper -computer are mitigated.
To conclude, “When built a bond portfolio for the post-small era with higher interest rates, it is worth considering a strategic change compared to the conventional allocation in investment grade corporate bonds at five years, focusing on Reddit’s opportunitiesor. It is advisable to invest in short -term securities to variable rate and in higher income segments, with the final goal of building a flexible and resilient portfolio “
