Crystal ball

Emerging markets and high yield could deliver positive returns for fixed income

Emerging markets bonds and high yield fixed income could deliver positive returns under most scenarios envisioned for 2014, according to Standish Mellon Asset Management, the Boston-based fixed income specialist for BNY Mellon.

The attractiveness of some emerging markets bonds is enhanced by currencies that have declined to levels below fair value in some countries, Standish says.
 
The report also notes that selected peripheral European sovereign debt also could provide opportunities in 2014 as economic fundamentals have strengthened and structural improvements have been made.
 
Standish expects government bond yields to gradually move higher in 2014 as the global growth outlook improves and inflation begins to stabilise.
 
In the US, it expects yields for Treasury bonds to rise to a range of 2.73 per cent to 3.61 per cent, depending on the strength of economic growth and the improvement in the labour market, resulting in negative returns for 2014.  Under its base case scenario, Standish expects the yields to end the year at 3.50 per cent.
 
“The challenge for bond investors will be to find positive returns against a backdrop of rising government bond yields in the US and other developed bond markets,” says David Leduc, chief investment officer for Standish and author of the report.  “However, we see several areas where fixed income investors have the potential to achieve positive returns.”

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