After increases in yields this year of the order of 150 to 300 basis points depending on the sector, “we have gone back to basics a bit” regarding the role that investors expect from bonds in their portfolios, has said Kimberley Stafford, managing director and global head of product strategy at Pacific Investment Management Co. LLC, based in Newport Beach, Calif.
While rising rates have driven down the prices of the bonds investors currently hold in their portfolios, “we always say the journey to higher rates is very painful but the destination” – offering better entry points for new allowances – “is good,” said Ms. Stafford.
With increased volatility and recessionary risks now expected, “we are seeing many institutional clients actually reverting to basic bonds in terms of asset allocation,” she said. .
PIMCO reported $1.71 trillion in assets under management as of December 31, up 4.8% from a year earlier.
Mr. Chemouny said Natixis was now noticing a similar upturn in interest. “I see huge investors, like big Japanese pension plans, like big Chinese investors allowed to invest overseas, sovereign wealth funds around the world,” looking to allocate more to fixed income.
Justin George Muzinich, president and CEO of $39.4 billion New York-based credit boutique Muzinich & Co., said this year’s market cycle is not expected to be fundamentally different from previous ones, with some asset segments doing well and others not. For Muzinich, the firm’s floating rate strategies are doing quite well, he said. Muzinich had $5.4 billion in floating rate strategies.
“There is no perfect solution, but in a world where the two big risks on people’s minds are recession and inflation, public and private floating rate senior secured credit is a reasonable place to be. because you’re senior in the capital structure if you’re worried about recession and you’re floating rate if you’re worried about inflation,” he said.
Like Ms. Stafford, Mr. Muzinich said rising yields this year have also made opportunities in public bond markets attractive. With the US high yield market now yielding 7.5% for B, BB, excluding CCC, “if you have a four-year holding period, you potentially earn over 25% in coupon”, and assuming recovery rates 30% or 40%. , default rates would have to be close to those seen during the global financial crisis for investors to lose money.