Apart from high yields, most bond indexes across the board fell over the month to start off the year. The shift back to risky assets sent funds out of the safety of fixed income and the sale of assets forced the indexes down. Bloomberg Barclays Global Aggregate, US Investment Grades, and Emerging Markets US Dollar Bonds were down 0.88%, 1.28%, and 0.85%, while US High-yields gained 0.33%
Our views on the fixed income market remains unchanged, we continue to value high yield bonds over investment grades as 1) Economic recovery should continue, and 2) High yields have more upside potential. Vaccinations programmes across the globe continue, which forms the basis for global economic activity to return to normal. In a cyclical recovery environment, high yields usually outperform investment grades, as market anticipate improvements in the business environment alongside credit and liquidity conditions.
As global central banks have repeatedly confirmed that the current interest rate doctrine will be kept constant as long as the overall economy is still below its original level, regardless of the inflation situation. This should guarantee the current low interest rate environment as the norm, credit spreads would form the main source of return, which is offered by high yield bonds. We will stay bullish on high yields and Asian credit for the year ahead, for they should offer the best risk adjusted return in the market with their higher upside potential under the backdrop of overall improving economy across the globe.