Of course, variety is the spice of life and in searching for yield, it makes sense for bond investors to broaden their horizons and let their investment mandate travel more freely than themselves. This means not only outside their domestic market and within the region but further abroad.
While most of the world has been unable to travel in 2021, the same cannot be said for funds flows, which have journeyed far and wide in the search for yield and an adequate return on investment. As we come to the end of the year, a clear theme to 2021 has emerged: The year has been about returns — a return to normalcy following the pandemic, and an adequate return on investment that compensated for initially low benchmark yields, subsequently mitigating inflation and the prospect of rising rates, and thirdly avoiding the potential for capital losses from unforeseen regulatory risk and a tighter financing environment.
As we discussed in early November, rising rate expectations have not been kind to high-grade bullet bonds and in the context of the global economy opening once again (albeit unevenly and under the threat of new Covid-19 variants), we are turning towards high-yield credits on a highly selective basis.
