Aiming for perfect harmony

The fixed-income world faces a confusing cacophony of challenges. Striking the right keys at the right time is crucial to avoid discord. This calls for handing over the baton to the expert.

Generating alpha is all about hitting the right keys

The fixed income market is currently facing a hubbub of issues. Historically low yields, inflation worries, ultra-tight credit spreads, fears of stimulus unwinding, liquidity premium, concerns of a haphazard recovery and the emergence of new variants of coronavirus are just some of them.


The attempts by central banks to contain the effects of the upheaval caused by the coronavirus pandemic since early 2020 have depressed yields further. Indeed, the market value of negative yielding debt, both sovereign and corporate, almost equals the size of China’s GDP*. In the credit market, spreads have tightened significantly, resulting in elevated valuations.


Everyone is trying to second guess the trajectory of inflation and how soon policy makers will begin to tighten interest rates. It’s well known that policy makers have tried to rekindle inflation since the financial crisis more than a decade ago, with little success. In that world of falling yields and low volatility, economic outcomes were poor, as central bank liquidity flowed directly into financial assets.


Smooth transition