Below are a few highlights from the episode:
[5:00] The Income Strategy Playbook: The OppenheimerFunds Income Strategy playbook, which Tim works with the firm’s income strategy portfolio managers to develop, examines the current opportunities in debt markets. One of the most important indicators we always come back to is the yield curve, according to Tim. That sets the tone for analysis in other areas of the market. In the past, an inverted yield curve, measured by the difference between 2- and 10-year Treasuries, has been about an 18-month warning sign for a large downturn.
[10:00] What’s Going on in Fixed Income: Tim peels back the many layers of the fixed income market, the first being Treasuries. “Treasury is the one area that's going to remain under pressure, we think, as rates rise. You're seeing a lot of new issuance on the Treasury side and just in general, that's an area where we're still shorter duration and cautious,” he says. Other issues featured in the episode include mortgages, structured credit, asset-backed securities, and investment-grade bonds.
[15:00] Investment-Grade Bonds in Focus: Investment-grade corporate bonds look good in the current environment. “In general, the fundamentals are strong and when we think about U.S. companies, they’re still flush with cash from the tax reform earlier this year,” says Tim. Furthermore, there has been a pickup in M&A activity and other elements that point to a healthy market. But most investors are buying investment grades for 20 years, not month to month. So, what should investors be watching? “You have to look at current yields which is the best predictor of future returns for bonds,” he explains.
[23:00] What About Junk Bonds: The biggest drivers of high-yield bonds and bank loans is economic growth. Like investment-grade bonds, these are longer duration assets with more sensitivity to the economic cycle.Of the two, though, loans still look more attractive given a more senior capital structure and less duration risk.
[31:00] The Dollar Strikes Back: “The strong dollar has been one of the biggest drivers of negative returns for U.S. investors in almost any international or emerging market asset class, from equities to fixed income,” says Tim, “So, when we think about what we like in international fixed income, we still favor developed market corporates, emerging market sovereigns, and emerging market corporates over the long term.”
World Financial Podcast Episode 46:
Income Strategy: Still Favoring Credit and International
As we approach 2019, what is influencing the income landscape?
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