Has a Blue Wave changed our view on duration?

  • 11 Enero 2021 (3 min de lectura)

The first week of 2021 has been anything but boring. The Democrats won both Senate races in Georgia, which should allow them to pass a larger fiscal stimulus in the near term as well as pass other measures over the next two years. Yesterday, we witnessed shocking scenes in Washington DC, where protestors stormed the US Capitol as the Presidential election result was certified.

To deal with the violence in Washington first, this appears unlikely to have much of an impact on markets. We saw Treasury yields dip very slightly on the news, but the bottom line is that Trump has less than two weeks in office. The latest developments are concerning but analysis of them remains the preserve of political commentators.

The Democrats’ ‘Blue Wave’ is the bigger market story here. While unexpected immediately following the 2020 Presidential election, expectations for two Democrat wins had been growing over the past couple of months. The market reaction – a small rise in Treasury yields above 1% - was more important for breaking what some see as a psychological barrier, however, rather than the extent of the move itself.

Whither duration?

For the meantime, our view on duration remains unchanged. Yields breaking above 1% gives you something exciting to write about, but it doesn’t necessarily signify anything. Global investors such as Japanese pension funds are still mandated to buy safe yielding assets like Treasuries; they may come in at 1.2% rather than 1%, but come they will, pushing yields back down.

This might sound inconsequential, but a little bit of price volatility does help when eking out returns in bond markets. A 30 basis point move (or 0.3%) might not sound like much, but that means a return of around +/-3% for a bond with ten years’ duration. When you consider the other roles that government bonds can play in a portfolio – defensive protection, acting as a funding source, etc – then those returns can be meaningful.

Credit and financial debt also appealing

More broadly, certain parts of credit markets continue to look attractive with spreads at these levels. As you would expect with the potential for more fiscal stimulus, credit is currently outperforming government bonds; indeed, investors have something of a double bonus with the market continuing to be backstopped by the Federal Reserve. Given the pending appointment of Janet Yellen as Treasury Secretary, we can expect continued coordination between fiscal and monetary support.

We are considering adding to financial debt, particularly subordinated debt such as AT1s, but this is on the back of value in the market rather than any top-down macro view. This is a general point in how we manage our bond portfolios – we tend not to express macro views in individual names or sector funds, even if they might benefit from a top-down macro trend.

Not a fundamental reappraisal for duration

While the Blue Wave undoubtedly makes for a good headline, it’s not something that has taken fixed income investors by surprise. Duration still remains attractive and, in the absence of faster vaccine rollouts, it’s difficult to see that changing in the short term. The big question is whether we buy Treasuries at these levels or wait for a potential entry point 10 or 20 basis points higher. Ultimately, however, these remain timing questions on duration, rather than a fundamental reappraisal of its attraction.

    Advertencia sobre riesgos

    El valor de las inversiones y las rentas derivadas de ellas pueden disminuir o aumentar y es posible que los inversores no recuperen la cantidad invertida originalmente.

    Volver arriba
    Clientes Profesionales

    El sitio web de AXA INVESTMENT MANAGERS Paris Sucursal en España está destinado exclusivamente a clientes profesionales tal y como son Definidos en la Directiva 2014/65/EU (directiva sobre Mercados de Instrumentos financieros) y en los artículos 194 y 196 de la Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión. Para una mayor información sobre la disponibilidad de los fondos AXA IM, por favor consulte con su asesor financiero o diríjase a la página web de la CNMV www.cnmv.es

    Por la presente confirmo que soy un inversor profesional en el sentido de la legislación aplicable.

    Entiendo que la información proporcionada tiene únicamente fines informativos y no constituye una solicitud ni un asesoramiento de inversión.

    Confirmo que poseo los conocimientos, experiencia y aptitudes necesarios en materia de inversión, y que comprendo los riesgos asociados a los productos de inversión, tal como se definen en las normas aplicables en mi jurisdicción.