Recent market volatility and the conflict in Iran have understandably pushed many emerging market investors to the sidelines. But periods of uncertainty have historically offered attractive entry points into emerging market debt (EMD), particularly when underlying fundamentals are improving and asset flows are likely to increase.
Emerging market debt is compelling as a medium‑term structural allocation, particularly for investors seeking to diversify away from concentrated U.S. exposures.
For investors navigating an uncertain macro landscape, avoiding the wrong narratives may matter more than predicting the right numbers.
As the Federal Reserve continues to cut rates, the yields on money market funds are on a decline. For investors who prioritize safety, liquidity, and enhanced income, low duration bond strategies present a compelling solution. These strategies offer a balanced approach to navigating the current financial landscape.
Portfolio managers and market strategists from Payden & Rygel review the opportunities and risks ahead for four bond market sectors: high yield, emerging markets, global bonds and low duration securities.
Assets in money market funds reached an all-time high of $7 trillion this past month. Now that rates are moving lower, money market yields may not be as attractive to many investors and assets may gradually leave money funds.
On whole, EM growth has been resilient, while inflation has fallen closer to normal levels.
In a recent interview, Timothy Crawmer, global credit strategist at Payden & Rygel ($156.8 billion AUM), says it is the firm’s view that the Federal Reserve is going to start the rate cutting efforts in September with a 25 by 25 basis points, likely followed by another two 25 basis point cuts in November and December.
Today emerging markets are too big to ignore. The asset class represents a large and growing proportion of the world economy, accounting for over 40% of global GDP in 2022. The asset class includes a broad spectrum of issuers, with investment opportunities of varying risk/return.
Why should anyone be allocating to investment-grade corporate bonds right now?
High yield bonds are off their highs of 2023, but even now, with all-in yields around 8%, the asset class remains competitive with equities for total return potential with significantly better downside protection, according to Payden & Rygel’s Jordan Lopez and Nick Burns.
The High Yield Bond category is up 5.9% through September, ranking it among the best performers in the fixed income space. Payden & Rygel’s Jordan Lopez and Nick Burns outline three factors contributing to the market’s strength.
We call them narratives, memes, or mind viruses.
After a challenging 2022, it is time for investors to look forward to opportunities. Emerging Markets (EM) debt stands out as one place where investors can potentially take advantage of an underutilized asset class that offers attractive yields and diversification.
Don’t get too far ahead of yourself and drink the cool aid that bonds will underperform. Investor fears of higher interest rates have caused volatility, which we believe presents opportunities in the fixed income markets. Global central banks continue to intervene in the markets in such a way that natural market mechanisms cannot function properly.
