2021: The fixed income specialist view
In November 2020 we sampled the views of 106 analysts and managers from five investment firms within BNY Mellon Investment Management about the year ahead. Here, we drill down to the fixed income outlook for 2021.
Bullish on high yield bonds, bearish on sovereign debt. That was the broad view of the bond experts that responded to BNY Mellon Investment Management’s sentiment survey about the year ahead. The survey was a sampling of views from 106 investment professionals at Newton, Mellon, Insight, Walter Scott and Alcentra.
Where the majority of the equity and multi-asset managers and analysts who took part in the survey were generally bullish, respondents from the world of fixed income were more nuanced.
More than half said they were either selectively bearish or bearish on sovereign debt, with only 6% describing themselves as bullish on the asset class. Spending commitments to revive economies post-Covid as well as the possible threat of inflation dampened views on government debt.
When asked about corporate debt, however, the picture shifted completely: 65% described their outlook as selectively bullish or bullish. Their favoured asset class within fixed income? High yield (38%), private debt (30%) and fallen angels (22%). Investment grade had a less than sanguine outlook with just 8% of the bond experts in the survey saying they expected it to outperform in 2021. Despite the potential threat of inflation, c5% selected inflation-linked bonds as a sub-class likely to perform best in the coming year.
In their own words…
As part of the survey we asked respondents to provide their own views about the factors that could affect sovereign bond market returns in 2021. Here are some of those responses:
- “The risk of inflation as a result of borrowing could lead to higher rates”
- “Strong economic growth is likely to stoke mid-term inflation fears”
- “After a large number of sovereign credit downgrades in 2020, I foresee a more stable environment in 2021, but not particularly attractive.”
Here are their views when we asked the same question on corporate debt:
- “Support from governments and central banks will continue. Issues should benefit from demand in the search for yield.”
- “I believe credit should outperform but longer duration corporates will likely face headwinds from rising rates.”
- “Levered companies will likely pay-off their debt, thereby improving credit spreads.”
- “Many sectors are already trading close to or at pre-Covid spread levels – there are only a few pockets of value left.”
- “Rates have fallen tremendously and the net real return is not great overall. Pockets of value do exist though.”