Wells Fargo said there is a lot of uncertainty in the market today, but there may be several opportunities for fixed-income investors who are still agile. Bond yields remain rising as investors focus on uncertainty around interest rates and inflation. Currently, the 10-year Treasury yields are about 4.47%. The rate of return is inversely proportional to the price. After last year’s cuts, the Fed chose to keep interest rates unchanged in January. According to the CME FedWatch tool, most market participants believe central banks will lower again within a few months. Fed Chairman Jerome Powell testified before Congress on Wednesday that “we are not there yet”, reducing inflation to its 2% target. To capitalize on the uncertainty opportunity, Wells Fargo recommends staying active and implementing a defensive and growth-oriented fixed income strategy. “Ultra-short-term securities may look attractive, but if the Fed eventually lowers policy rates further, these opportunities will be reduced, while if inflation and hotter economic growth further raise interest rates, long-term securities can be exposed to interest rate risks ,” wrote Luis Alvarado, a global fixed income expert, in a note on Monday. According to Alvarado, these are six key opportunities. U.S. medium-term taxable bonds, Alvarado said, these bonds have a maturity of three to seven years, balancing yields and price volatility. He noted that they currently have attractive rates of return and historically have less sensitivity to rate sensitivity, which is important if rates increase. “This asset class may provide investors with opportunities beyond cash, cash alternatives and short-term taxable fixed income in the United States,” he wrote. Alvarado, a long-term taxable bond in the United States, prefers short-term bonds, to be on short-term bonds. Have bonds for 10 years or more, although he rated them neutral. “Think about long-term bonds and favorable duration (a measure of interest rate sensitivity) to take advantage of the long-term production steepness of the curve, as the Fed appears to pause the cycle with its lower interest rates,” he said. Alvarado said the tight credit spreads of investment-grade corporate bonds mean they are expensive, but have higher yields relative to other investment-grade fixed income sectors, making them a favorable investment. He advises investors to conduct a reasonable credit analysis before purchasing assets. He added that the focus should be on selectivity between issuers and departments and pay close attention to liquidity and high quality. Alvarado said the choice of securitization products both provide value relative to other fixed income investments, while providing favorable credit quality and liquidity. “In addition, we believe that the advantage of RMB is still visible in terms of credit differences than IG (investment grade) companies,” he said. “The demand for ABS is still particularly strong, and although credit differences have been compressed over the past few months, We think they have room for further tightening.” Alvarado said that fixed income per unit of emerging markets in the U.S. dollar and local currencies emerging market sovereign bonds should continue to have positive performance in the short term, but most support should be in the additional Behind the Federal Reserve’s tax rate cut. “Nevertheless, if interest rates climb again, or if credits expand, the attractive EM bond differences could provide greater monetary elasticity and a buffer for capital losses,” he said. Alvarado said municipal bonds The fundamentals of the system are still attractive in municipal bonds. He said that while other fixed income sectors may have attractive earnings opportunities, Munis still plays a major role in the portfolio of high-income investors. If an investor resides in the issuing state of the bond, the bond is exempt from federal taxes and is exempt from state taxes.
Wells Fargo offers six key opportunities for fixed-income investors | Real Time Headlines
RELATED ARTICLES