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Global Investment Views: Fixed Income - February 2018

Perspectives» |

February 15, 2018

A Carry Play in 2018

Markets are starting to price in more aggressive monetary policies and gradual rises in inflation expectations: the two-year Treasury note broke the psychological threshold of 2%, (not seen since Lehman crisis).

With the US tax reform now approved, we expect three rate hikes from the Fed in 2018. The Fed should continue with its gradual withdrawal of the monetary stimulus, with the risk of staying behind the curve if economic conditions further accelerate. More news from the ECB (i.e. revising the forward guidance) and BoJ (revising the 10 year bond target) would likely drive further volatility in bond markets. Given this backdrop, flexibility and diversification regarding sources of returns will be key, as will be searching for the most valuable carry opportunities. We see opportunities for active investors in relative value strategies; this is less the case regarding directional risk-on/risk-off angles.

DM government bonds

With no value in core government bonds, we believe investors should retain a short duration stance in both the Eurozone and the US. We also have a negative view in UK and Japanese government bonds where valuations are unattractive. We do see pockets of value in European peripherals. Concerning curve opportunities, the US curve has started to steepen following the repricing of inflation expectations in the US. In Europe, we see some value in the five-year bucket.

DM corporate bonds

Demand for credit remains strong, given a positive economic backdrop. Corporates fundamentals appear to be sound with many companies showing healthy balance sheets.  Companies have refinanced debt, benefitting from record low costs of funding, and this is positive regarding interest coverage ratios. Carry should be the main performance driver in 2018, as there is little room for further spread tightening. Subordinated debt of both financials and non-financial companies is attractive. High yield bonds may also offer opportunities, while convertible bonds could be a source of diversification in fixed income. In the US, corporate credit offers moderate value, in an environment in which fundamentals remain relatively stable. High yield, including bank loans, offers some value with below average spreads partly explained by well-below-average default rates. But selection is increasingly key.

EM Bonds

In EM as well, carry should be the main performance driver in 2018. Key themes for the year will be elections, including for major Latam countries (Mexico, Brazil, and Colombia among the most important ones) and the evolution of the Fed policy. We are more constructive on local currency bonds which show higher expected returns. Opportunities may be found in EM corporates (short duration), amid a continuing recovery in earnings and the low default rates. In sovereign bonds we have recently become more constructive on Brazil and Argentina where the economic momentum is improving and the political risk has normalized (Argentina) or is expected (Brazil) to normalize.
GIC_Fixed Income_2.15.18

Important Information


Unless otherwise stated, all information contained in this document is from Amundi Pioneer Asset Management (“Amundi Pioneer”) and is as of February 16, 2018.


The views expressed regarding market and economic trends are those of the authors and not necessarily Amundi Pioneer, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on behalf of any Amundi Pioneer product. There is no guarantee that market forecasts discussed will be realized or that these trends will continue. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested.

This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any service.


Date of First Use: February 16, 2018.

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Contributing Authors

Ken Taubes
CIO of US Investment Management, Amundi Pioneer


Diego Franzin
Co-Head of Equities, Amundi



Mauro Ratto
Head of Emerging Markets, Amundi


Ken Taubes
Executive Vice President,
Chief Investment Officer, US