I understand. Hide this message.

X

This site uses cookies. Learn More. »

Addressing Challenges with Solutions

Flexible Fixed Income within a Low Duration Framework

Mauro Ratto

In a rising rates environment, income-oriented investors should look to higher yielding bonds with shorter duration, as these tend to be more resilient in a rate-hike cycle.
A highly flexible short duration approach, with the freedom to
search for the optimal yield/duration profile across Fixed Income segments, can benefit investors across the evolution of the economic cycle.

 

Pioneer Funds - Optimal Short-Term

 

Emerging Market Yield Potential with Short Duration

Yerlan Syzdykov

This asset class can potentially offer an attractive yield pick-up compared to traditional Developed Market bonds, while at the
same time benefit from a shorter duration profile.

For clients expecting rates to rise, a short-term strategy in Emerging Markets bond aims to provide a lower risk, lower volatility play on short duration. Perhaps most importantly, clients using the product to average back overall portfolio duration may benefit from the Yerrelatively higher yields available in Emerging Markets.

 

Pioneer Funds - Emerging Markets Bond Short-Term

Global Subordinated Bonds

Vianney Hocquet

Not all Fixed Income assets will suffer equally in a rising rates environment. Subordinated bonds due to their high spreads, sector mix and limited duration can represent an interesting allocation option. A flexible and global investment approach to this asset class may deliver positive returns and income in excess of that available from senior bonds, and these bonds may withstand rising rates and their correlation to other asset classes is low.

 

Pioneer Funds - Global Subordinated Bond
challenge-5-interest-rate

Investment Experts
Video Interview

challenge-5-mauro-ratto

Mauro Ratto - Head of Emerging Markets

Giles Bedford - Client Portfolio Manager

Vianney Hocquet - Portfolio Manager

 

Overview

The return of inflation, combined with expectation of tax cuts and infrastructure spending in the U.S. have pushed the yield on the two-year U.S. treasury to the highest level since 2010 and the 10-year bond has also yielded up to above 2% in 2017.

 

The paradigm shift from monetary to fiscal policy should result in rising interest rates further sustaining this trend, but the uncertainty on policy decisions and implementation could cause some volatility in the rising path.

 

A rising rates environment is challenging for bond investors as bond prices fall, everything else being equal. In this context, investors could benefit from higher yielding bonds with short duration, which should be more resilient in a rate-hike cycle. In search for attractive yields, investors may consider diversifying into short-term Emerging Markets bonds, which offer an attractive yield pickup compared to traditional Developed Market bonds, while at the same time benefit from a shorter duration profile.

 

A flexible approach in search for the optimal yield/duration profile in all Fixed Income segments can also be beneficial. In fact, it allows for dynamically searching for opportunities across different geographies and instruments, and adapting the asset allocation through the evolution of the economic cycle. For bond investors it is time to get ready for a possible rise in bond volatility by seeking out higher yields with a short duration profile. In doing this, we believe selection is paramount to manage credit and liquidity risk.