Bonds: The Emergence of Divergence
Lord Abbett's Investment Perspectives
Bonds: The Emergence of Divergence
Partner & Portfolio Manager
Kewjin Yuoh: This is Kewjin Yuoh. I'm a portfolio manager for taxable fixed income.
Assessing risk assets amid differing global growth rates
Yuoh: The U.S. in this very strong environment with the consumer, all leading indicators continuing to trend upward. And then you make the segue to trade policy and its potential impact in terms of global growth, right? The EM weakness that we've seen, the China uncertainty going forward, whatever that may be.
And so again as investors when we look at risk assets, how will risk assets perform or how can they perform in an environment where you have divergent paths fundamentally for the U.S. and the world, right? And can valuations do better from here in that environment, right? I think that's a question that we have to answer to position our portfolios correctly.
If you look at current valuations, it's already reflected some of that. High-yield debt is doing well. Investment grade corporates have weakened over the last few months, and that shift has been pretty dramatic. If you look at commercial mortgage-backed securities and asset-backed securities, commercial mortgage-backed securities focused on domestic real estate, asset-backed securities focused on the consumer. They've done very well this year, right? And so paying attention to that and thinking about the scenarios where how those relationships will change over the next six months to a year will be very important.
EM refers to emerging markets.
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