3 Keys to the 2021 Second Half: U.S. Fixed Income | Lord Abbett
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Fixed-Income Insights

Lord Abbett Portfolio Manager Andy O’Brien examines factors that could influence the U.S. bond market in second half of 2021. 



[LOWER THIRD: Andrew O’Brien, Partner & Portfolio Manager] Hi, this is Andy O’Brien, partner and portfolio manager in Lord Abbett’s taxable fixed income area. I want to talk to you about three things that we're looking at and the investment grade corporate bond market right now.

[LOWER THIRD: Key #1: Selecting sectors for the post-pandemic environment.] The first thing we're paying attention to is sectoral composition. As we transition from the pandemic period to the post-pandemic period we're trying to get rid of industries or avoid industries that don't seem likely to thrive in the post pandemic environment—things like your classic consumer staples, now that people aren't sitting at home with “mac and cheese” anymore going out and doing other things and trying to find the post-pandemic opportunities. Some of those are very obvious-really, anything in the leisure and lodging complex. Others, you have to be a little bit more careful with things like autos and homebuilding where the ramp-up in production is creating bottlenecks and pricing pressures that could impede margins. And even if the overall industry is generating a lot of sales, it might be a profit-challenged environment, just due to the price pressures.

[LOWER THIRD: Key #2: Improving high yield credit quality.] The second thing we're looking at is the credit improvement in the high yield market. So, a number of large issuers at the fell out of the investment grade index [LOWER THIRD: “Investment-grade index” refers to the ICE BofA U.S. Corporate Index] during the pandemic got downgraded to junk. We're anticipating that quite a number of them will find their way back into the investment grade market. And taking advantage of the opportunities those transition from high yield back into investment grade, I think, will be a key part of outperforming in this environment.

[LOWER THIRD: Key #3: How companies may use their cash.] And the last thing is “animal spirits” [companies’ optimism about the future]. Companies with solid balance sheets are looking at a pretty good growth environment. You always worry as a bondholder they're going to be aggressive and maybe make a debt-financed acquisitions, or maybe using some of all that cash they piled up from government support during the pandemic to buy back stock. So as a bondholder you want to make sure that that companies are being careful stewards of their credit ratings and that's something that will watch as we move forward in this in this environment.


00:03:30.450 --> 00:03:31.320

Thank you for listening.


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