Central banks will maintain the policy rate “status low,” while modulating asset purchases to maintain easy financial conditions. At the same time, the fiscal impulse is set to remain relatively friendly.
We will enter 2021 with low policy rates, low government bond yields and low fixed income spreads. To navigate this “status low,” we seek to access and diversify across the broad fixed income opportunity set including corporate and securitized credit alongside emerging market (EM) debt. We also look for openings to capture risk premiums created by market inefficiencies; locating these will be important as vaccine-driven cyclical improvements alongside a friendly policy mix creates a risk-on environment where potential return opportunities can swiftly evaporate. We also see value in utilizing currencies as a hedge for risk asset exposures. Last but by no means least, we advocate a sustained focus on environmental, social and governance (ESG) analysis, which 2020 has emphasized is a “bear market necessity” not just a “bull market luxury.”