Fixed income – Standing Firm on HY over IG | Harris Fraser
Research Insights
25 October, 2021
Fixed income – Standing Firm on HY over IG

With inflation pressures mounting, worries over rate hikes and monetary tightening drove down bond prices for all credit levels, with major indices ending in red across the board. Bloomberg Barclays Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bonds lost 1.78%, 1.05%, 0.01% and 1.66% respectively.

Global inflation have seemingly gotten worse. CPI figures in the US edged ever so slightly lower, but the YoY figure remained above 5%, Eurozone figures even hit a 13-year high. To make matters worse, the ongoing energy crisis could stay until the end of the year, the elevated fuel prices are expected to support inflation at multi-year high levels, such that the current dovish policies could come under question.

The ECB stood firm on their current policy, stating that they still believe that the current elevated inflation as purely transitory, and suggested that the current accommodative monetary policies will stay in place until the economy fully recovers. The US Fed on the other hand though had a more hawkish stance. Fed chairman Jerome Powell warned that inflation pressures are higher and raises the prospect of an earlier and larger tightening. With the US taking the lead in tapering, interest rate continue to serve as the main source of downside risk in the fixed income universe. Henceforth, our view on the market has not changed, we would still take high yields over investment grades as they offer better risk adjusted return in the current environment. 


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