All fixed income indexes in focus went up in July. With the global quantitative easing continuing into the second half of the year, bonds see very limited downward pressure.
The Bloomberg Barclays Global Aggregate Bond Index were up 3.19%, US Investment Grades gained 3.25%, while Emerging Markets US dollar Bonds and US High-yield bonds also rose 3.12% and 4.69% respectively.
Despite the second wave covid crisis regaining traction across multiple countries, concerns over the epidemic continue to fade out of the spotlight as various economic indicators improve, and markets look forward to the much-anticipated v-shaped recovery as vaccine hopes go high. Corporate confidence improved, and credit markets seemingly forgot about the ongoing fiscal support from the governments that keeps various corporations afloat, which might be a concerning risk factor if one were to invest blindly.
Even though credit markets have generally improved, Fitch ratings have warned of a 5% default rate in high yield bonds over the year, underpinning the heightened innate risks in the credit market; With market optimism running high, investors might also want to seek hedging against the heated market. In both cases, selection is still very important. Avoid issuers from sectors expected to suffer lasting damage from the covid fallout, and stay away from emphasising on the past financial records, only pick issuers with solid financials unaffected by the pandemic.