Dear Investors,

Please find below the latest edition of the Fixed Income monthly as of December 2019.

Key Highlights
 

TAA:

The announcement of a Phase 1 trade deal between the US and China has led us to turn tactically more constructive on emerging markets local currency debt. We are therefore cutting our underweight preference on the asset class to move back to neutral. At the same time, we cut our sovereign exposure from neutral to underweight.
 

Sovereigns:

The resilience of certain sectors of the economy in the US point not to a recession, but to sluggish growth instead. This is preventing any significant rally in Bunds, and longer-term yields may stretch their premium over the shorter maturities.
 

Credit:

Overall, the remaining credit spreads are increasingly sensitive to rate moves, and credit – with its tighter alignment to the macro environment – is more macro-driven than other segments. Tighter spreads and flatter curves have been the dominating themes in the EUR credit space in 2019.
 

Emerging debt:

Global growth looks to be bottoming out, central banks are accommodative, and market sentiment is improving. We are constructive on EM corporate debt into year-end, despite social unrest in several countries, but remain cautious on the local segment.
 

Issuer preferences:

Over the month, in the investment-grade telecom sector we added Orange SA. In investment-grade utilities, we added Enel Spa and SSE plc. In high-yield, we removed Smurfit Kappa. In emerging markets LatAm, we added Suzano to the investment-grade list. On the high-yield list, we added Klabin and removed Cemex and Union Andina de Cementos.
 

With kind regards,

The Investment Solutions Fixed Income Team