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Fixed Income, what are the opportunities in 2011?

The Natixis Asset Management teams have pinpointed three main themes in order to seize the market oportunities, including selectivity in the bond markets.

The natural risks in Japan and geopolitical risk in the Middle Eastern countries seem to counterbalance the expectations of an increase in policy rates from the ECB. The bond outlook for 2011 thus remains unchanged at this stage. Risky assets effectively remain underpinned by

  • accomodative interest rate policies in the developed countries
  • stronger US growth and increasingly driven by private demand
  • a gradual reduction in public deficits
  • corporate fundamentals that remain solid
  • the stabilization of the banking system

The gradual increase in interest rates and inflation driven by commodities offers an favorable environment for seeking returns in the different segment of the international bond markets:

  • High Yield: positive carry trade and default rate expected to be vey low
  • Emerging: flows decelerating but fundamentals still positively oriented
  • Inflation-linked: exposure to the rise in commodity prices

Fixed Income: three key strategies

To increase return while limiting exposure to Euro-denominated sovereign risk, Natixis Asset Management prioritizes a pro-active management approach within the following diversification segments

  • Two carry strategies focusing on the market segments with attractive returns such as High Yield and emerging debt which offers a source of additional value via currencies
  • Exposure to inflation-linked bond to benefit from the impact of the rise in commodity prices

High Yield

Thanks to the continued expansion of its primary market (record level of issuance last year), High Yield should continue to offer numerous investment opportunities given the financing needs of issuers seeking an alternative to bank debt and the current level of spreads

Emerging Debt

Concerning emerging bonds in currencies with returns that remain attractive, the Natixis Global Asset Management multi-boutique model offers exclusive access to two additional sources of expertise: that of Natixis Asset Management in Europe and that of Loomis Sayle & Co, L.P. in the United States

Inflation-linked

For investors not able to benefit from the rise in commodity prices via other asset classes (in particular equities), international inflation-linked bonds present a promising alternative for the next few months

  • Even if the oil price were to stabilize, the past increase should continue to be reflected in inflation over the next few months
  • The Natixis Asset Management specialists also expect further upwards pressure on food prices

Next Finance , April 2011

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