After the 2 months of mixed returns, fixed income stabilised in November as markets tamed down with reduced uncertainties. All bond indexes in focus went up over the month, the Bloomberg Barclays Global Aggregate Bond Index and US High-yield bonds gained 1.82% and 3.96%, while US Investment Grades and Emerging Markets US dollar Bonds were also up 2.79% and 3.07% respectively.
The largest moves in the market came from high yields. Anticipating a full recovery in the economy early on next year, credit spreads of high yields narrowed over the month, as a stronger economy reduces the risk of default among high yield issuers. The anticipated extended fiscal support from global governments also serves to support the businesses through the hard times ahead. Apart from improving fundamentals, global monetary policy staying loose also helps support bond prices in the mid to long-term.
As for the outlook, we remain positive on fixed income overall as downside is limited with the ongoing support from quantitative easing and prolonged low interest rates across major central banks. We continue to rate high yields higher due their more favourable risk-to-return payoff, valuing Asian high yield names more due to 1) stronger economic fundamentals, and 2) higher risk premiums for the same level of credit risk. Quality remains the key focus when considering high yields, we would favour issuers with stronger balance sheets and operational cash flow, and avoid ones that require additional governmental support to stay afloat.