Fixed Income

April saw positive performances for risky markets, with equities and convertible bonds outperforming, followed by high yield. Government bonds underperformed across most major markets except Japan. We also saw a recovery of subordinated and CoCo bonds to the detriment of more senior issues.

With the upcoming 2023 Turkish presidential election, scheduled to take place on 14 May, we are sharing our views and sentiments on the possible outcomes and their consequences.

In March, markets were driven by the strong performance of most asset classes, confirming a general trend year-to-date in which investors in most major asset classes have been rewarded with positive returns.

Bond investors did have a rough time in 2022. But a new era begun when central banks initiated their forced march of interest rates hikes, bringing some fresh opportunities to investors.

Portfolios managed by Candriam have no exposure to any Credit Suisse security, OTC exposure or stock-lending exposure.

In the weeks to mid-March, the dominating theme was perhaps the return of decorrelation between risky assets and rates. All G4 sovereign issuers saw falls in their 10-year yields, while major equity indices all took hits. Credit spreads also widened.

After 2022, an “annus horribilis” for many investors, we believe that bond repricing now offers many opportunities.

The beginning of the year provided some relief to global investors and allowed them to claw back some of the losses they suffered in the previous year.

“Nowhere has it been considered a disastrous indirect tax is created by constantly rising inflation, nor what the results are.” (Welche vernichtende indirekte Steuer zudem in der fortschreitenden Papiergeldinflation liegt, wird übrigens an keiner Stelle berücksichtigt – Rudolf Havenstein, 1922

Market exuberance continued in December and through the first days of January, as risky assets posted a strong performance, once again on the back of signs of weakening inflation and the hope that central banks would strike a less hawkish tone.

After a bruising first 10 months in 2022 that saw fixed income investors suffering near-record losses in most asset classes, November offered the first true relief of the year.

The macro environment in 2023 is likely to remain challenging for emerging market debt, especially in the first half of the year.

October offered a mixed picture following a bruising first three quarters. The Bloomberg Global Aggregate Index was down 0.55%, driven primarily by losses in US Treasuries. However, investors in some segments of the credit markets, especially EUR HY, USD HY and to a lesser extent EUR IG did see positive performance. Most Inflation-Linked Bonds markets with the exception of the US also rallied on persistently high inflation.

Luiz Inacio Lula da Silva narrowly won the second round of Brazil’s election, beating incumbent Jair Bolsonaro. Initial fears that Bolsonaro wouldn’t accept the result, particularly if it was tight, have receded. Bolsonaro said that he would follow the constitution and play by the rules, while his chief of staff, acknowledged the defeat.

It is rather unusual for a President of the French Republic to openly criticise European monetary policy. A guardian of monetary orthodoxy, the European Central Bank’s (ECB) mandate is well known by all: to keep inflation close to 2%, regardless of budgetary policy.

After registering losses in August, there was no reprieve for fixed income investors in September. All major asset classes posted negative returns, with the biggest falls coming in UK gilts.

After a respite in July, August saw negative performances across the board for almost all asset classes. In G10 rates, investors in Japan suffered the least (-0.97%), whilst the UK posted the largest losses (-6.36%), followed by EMU peripherals at –5.34%. EMU core markets fared somewhat better at -4.71%, but with a sizeable distance away from US government bonds at -2.73%. Breakevens were positive across the board, although barely so in the eurozone.

June marked another month of strong volatility, with core rates moving sharply upwards over the first half, while the second half saw some respite, albeit in a fairly turbulent environment.

Recent rises in inflation -- to levels not seen in decades -- have negatively affected returns across most asset classes. Rate rises have been some of the steepest seen in many decades. In the current environment, as we move further into resolute central bank tightening, we may see a considerable cooling down in global economies.

Inflation is a complex phenomenon. Often self-fulfilling, it tends to become stronger when economic agents believe that it is present. This makes it difficult to forecast - so central bankers have largely been wrong in recent years.

The performance of financial markets improved in May, with US markets posting a positive performance for the first time this year. Equities rebounded from their lows of May 19th and the greenback weakened while EUR/USD rebounded towards 1.07.

The time was July 2011. Despite the eurozone debt crisis, Jean-Claude Trichet raised the ECB’s key rate to 1.50%. He needed to combat inflation, which was dangerously close to... 2.50%. We all know what followed, traumatising many a bond investor facing deflation in Europe and the debt crisis in the weaker European nations.

The performance of the fixed income asset class was impacted by geopolitics, the rise in inflation and the generally hawkish stance of central banks.

Lucia Meloni and Céline Deroux share their views about the changes we need to make in business and mindsets to reach a sustainable future.

Markets witnessed a sharp rebound over the past month (since March 7) following the sharp drawdown that followed Russia’s invasion of Ukraine.