30th May 2018

BlackRock: Alpha Opportunities in Fixed Income

Markets have been volatile since the start of 2018, bringing greater focus onto the asset mix in client portfolios. Ahmed Talhaoui, CFA, Co-Head of Product Strategy for BlackRock’s Global Fixed Income Group discusses alpha opportunities in the fixed income market.

A changing fixed income landscape

Emerging trends in the fixed income market pose an interesting new set of challenges for investors. A great deal has been made of US 10-year treasuries touching 3%. For the first time since the financial crisis, US dollar investors can earn positive after-inflation returns from more traditional bonds. Having been forced to seek yields from riskier assets, they can potentially now return to a core source of income – especially if treasury yields hit 3.5% or 4%.

More broadly, global economic activity indicators point to synchronised growth and inflation is expected to continue rising slowly. As we end the era of loose monetary policy, opportunities are emerging at the short end of yield curves particularly in the US. But there are different speeds of monetary policy ‘normalisation’. The US is pressing ahead with its rate rises but other central banks are in a less propitious position.

There are a multitude of duration, yield curve, credit and macro considerations to take account of – and there is no doubt that we are entering a more volatile period for markets. So, what role should fixed income play in portfolios and what are the alpha-seeking opportunities?

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Investment Commentary, Investments