By J.P. Morgan Asset Management via Iris.xyz
Continued low yields and the risk of rising interest rates mean fixed income investors are continuing to broaden their search for income and total return. But Nick Gartside – International CIO of Global Fixed Income and portfolio manager for the JPMorgan Global Bond Opportunities Fund and the JPMorgan Global Bond Opportunities ETF – believes global bond markets continue to offer plenty of opportunities for flexible, unconstrained investors. Here, he looks at five ideas he and his team believe are attractive for the next 12 months.
1. Still riding high: US high yield
US companies are in good health, and we expect them to remain that way, with higher global growth driving acceleration in earnings. Revenues and debt coverage ratios are picking up, while leverage is ticking down—all good news for bond investors. Default rates, at 1.5% over the 12 months to June 2017, remain well below their long-term average of 3.7%.
Spreads have enjoyed strong tightening momentum for the past 18 months, and while we don’t expect this to continue at the same pace, there is still room for them to come in further in a gradually rising or stable interest rate environment. On the technical front, we aren’t seeing companies being too aggressive in issuing debt, and proceeds are largely being used for refinancing at lower interest rates.
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