Outlook 2014: Global Credit - What's in store for global credit in 2014?

    by Wes Sparks, Head of US Fixed Income and Lead Fund Manager, Global Credit,

    and Sarang Kulkarni, Fund Manager, Global Credit

Summary:

• Europe, the US, Japan and emerging markets are positioned at different stages in the credit cycle, offering different investment opportunities to the global credit investor. As the credit cycle advances, stock selection will gain in importance vs macro-driven factors.
• The near-term returns from global credit are dependent on the rate of normalisation of government bond yields - the Federal Reserve is starting to reduce stimulus, but the central banks in Europe and Japan are expected to maintain, if not increase, the monetary stimulus they are providing.
• Higher yields are expected to draw demand from institutional investors as they seek to reduce asset-liability mismatches.
• Duration hedging can help improve returns from global credit should the recovery be stronger than expected and government bond yields rise.