By Nick Gartside via Iris.xyz

In an environment of strong growth, rising rates and still-low yields, the ability to invest flexibly across global bond markets is particularly valuable. But where do the opportunities lie? Nick Gartside, International Chief Investment Officer for Fixed Income and manager of the JPMorgan Global Bond Opportunities Fund, shares three ideas he and his team currently like—and two more to watch.

U.S. and European high yield are supported by the robust macroeconomic backdrop and strong corporate earnings. Leverage continues to decline across both regions, while default rates are very low, and almost two-thirds of new issuance is still being used for refinancing.

Valuations in both regions look attractive, but there are a couple of reasons for U.S. investors to pay particular attention to Europe. First, spreads for European high yield, at 369 basis points (bps), currently trade wider than for the U.S., at 349 bps1—an unusual condition typically seen in periods of systemic eurozone crisis. With worries over Italian politics and a possible eurozone slowdown receding, we expect the relationship to normalize.

Currency is also a factor. While yields are higher for U.S. high yield in local currency terms (6.3% at the index level, vs. 3.4% for Europe), 1 dollar-based investors in the European market get a significant yield pickup through currency hedging.

2. Access niche markets The U.S. consumer is in good health, with confidence near an 18-year high and unemployment close to a 40-year low. To tap into this strength, we like securitized credit such as pools of auto loans or credit card receivables.

2. Access niche markets

The U.S. consumer is in good health, with confidence near an 18-year high and unemployment close to a 40-year low. To tap into this strength, we like securitized credit such as pools of auto loans or credit card receivables.

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