Combatting the inflation threat
By International Adviser, 5 Jul 18
Investors need to be focusing more attention on the potential for rising rates – both inflation and interest – and the implications for fixed income portfolios as global economic growth conditions continue to improve, says Neuberger Berman’s Jon Jonsson.
We continue to have exposure to European high yield credit, but this position is partially hedged using CDX.
The European high yield sector continues to benefit from lesser sensitivity to changes in US monetary policy.
At the same time, the market is still well supported technically by the European Central Bank’s investment grade corporate bond purchases – which is depressing yields and spreads beyond the target universe.
Projected default rates remain subdued, which in relation to improving fundamentals, maintains the attractiveness of the risk premium offered by European high yield credit spreads.
Despite this, we currently partially hedge our European high yield bonds through credit default swaps, reducing the effective credit sector exposure as valuations are at recent tights.
We believe volatility may emerge from potential monetary policy surprises and political risk on the horizon.
Tags: Inflation | Neuberger Berman
