Last updated: 19:09 / Tuesday, 8 July 2014
According to Henderson

Recent Events Affecting Global Fixed Income Markets

James McAlevey and Phil Apel, members of the Henderson Fixed Income Strategy Group (ISG) discuss the big developments of recent weeks, including the 50 basis points interest rate cut in Mexico, the buoyant US non-farm payrolls number and the package of monetary policy measures announced by the European Central Bank at its June meeting. Discover what this means for portfolio positioning in terms of country exposures, yield curve positioning and currency preferences.

James focuses on recent developments:

  • 50 basis points cut by Bank of Mexico (most favoured of our EM markets but lightened up some of the exposure after recent strong gains)
  • Non-farm payrolls print (first time four consecutive months of 200,000 plus net job gains occurred in last 10 years), underscores fact that US economy is at more advanced stage in economic cycle and facing greater interest rate risk
  • Aggressive policy package announced by European Central Bank. Will not see full impact of negative rates until fully enacted but could have meaningful behavioural consequences in terms of how economic participants react to being charged for holding deposits. Greater liquidity should help to anchor short rates lower for longer. Targeted Longer Term Refinancing Operations (TLTRO) is contentious: it is not clear that banks need the money or that enterprises are clamouring for the cash but the terms offered are attractive and the four year term is longer than expected.

Phil explains portfolio positioning:

  • Taking little interest rate risk and limiting exposure to US Treasuries, prefer Europe
  • Intermediate bonds (3-5 year part of curve) should benefit most from negative rates in Eurozone.
  • Peripheral eurozone govt debt beginning to behave like core govt bonds but with yield pick-up
  • Credit assets have performed well in Eurozone, seeing better relative value in sterling market
  • Within currency exposure, favour USD over euro

Portfolio positioning reflects ISG views and has direct relevance to the Henderson Unconstrained Bond Fund.

Click on the video to view full interview.