{"id":17443,"date":"2019-11-07T09:30:50","date_gmt":"2019-11-07T14:30:50","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/which-global-bonds-are-most-attractive-in-todays-interest-rate-environment-138495"},"modified":"2019-11-07T09:30:50","modified_gmt":"2019-11-07T14:30:50","slug":"which-global-bonds-to-consider-in-todays-interest-rate-environment","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/11\/07\/which-global-bonds-to-consider-in-todays-interest-rate-environment\/","title":{"rendered":"Which global bonds to consider in today\u2019s interest rate environment"},"content":{"rendered":"\n
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Kelsey Rolfe<\/span> | November 7, 2019<\/p>\n

As market uncertainty causes a slowdown in Europe\u2019s economy, an accommodating central bank and negative interest rates are making its bond markets more attractive to institutional investors than those in the United States.<\/p>\n

\u201cEurope is a very export-led economy and Germany, in particular, is driven by exports to the rest of the world,\u201d said Rod MacPhee, vice-president and portfolio manager for Franklin Templeton Investments Corp.\u2019s fixed income group, at an event in Toronto on Tuesday. \u201cSo uncertainty for them has a particular meaning. What they need is certainty around . . . what trading relationships are going to look like.\u201d <\/p>\n

He noted German manufacturers have started to pull back as a result of uncertainty from tariffs on German automobiles flowing into the U.S. and the constant delay of Brexit. \u201cWe see an economy where growth is going to be weak . . . and the inflation outlook in Europe is extremely low.\u201d <\/p>\n

Read: How is fixed income faring amid renewed market volatility?<\/a> <\/strong><\/p>\n

Franklin Templeton is currently overweight in European bonds and expects the continent\u2019s interest rates are \u201cgoing absolutely nowhere,\u201d or may even drop further, said MacPhee. Looking specifically at German bonds, the yield curve for 30-year bonds is still relatively high, sloping in comparison to shorter terms and allowing investors to take advantage of the term premium.<\/p>\n

In contrast, while growth has slowed in the U.S., it has a domestic demand-driven economy and consumers are currently doing well \u2014 the number of job openings has exceeded the number of job seekers, with wages growing as a result. \u201cWe actually see the U.S. as relatively resilient and one of the stronger economies,\u201d said McPhee. \u201cAlthough the [Federal Reserve] has embarked on interest rate cutting, we don\u2019t see any need for the Fed to continue to cut interest rates.\u201d<\/p>\n

With inflation expected to rise and the Fed expected to \u201csit on the sidelines,\u201d he said the firm has positioned its portfolio to be underweight U.S. bonds.<\/p>\n

Looking at specific countries, Franklin Templeton\u2019s main overweights are Poland and Spain in Europe, as well as Australia. Meanwhile, it\u2019s underweight on Japan.<\/p>\n

Australia is experiencing similar export issues to Germany, and confidence and growth are slowing, said MacPhee. In Poland, meanwhile, the economy is doing well, with higher interest rates, and its exports are primarily going to other European countries.<\/p>\n

Read: Which emerging markets should investors be considering?<\/a><\/strong><\/p>\n

Emerging market bonds are also attractive today, specifically those with strong fiscal fundamentals, reputable central banks that can adjust interest rates and relative market confidence in those banks\u2019 monetary policies, he said. \u201cIt\u2019s not a case of all emerging markets are created equal.\u201d <\/p>\n

Meanwhile, closer to home, the spreads on Canadian bonds are crunching tighter due to high demand, said Adrienne Young, vice-president and director of credit research with Franklin Bissett Investment Management, also speaking at the event.<\/p>\n

\u201cWe\u2019ve got Europeans and Asians piling into North American markets, both Canada and the U.S., buying anything with a positive yield, especially the scarier stuff \u2014 the triple Bs and the double Bs \u2014 and they\u2019re driving our spreads tighter and tighter. We face a real dilemma in the Canadian market, which is not a diversified market, which is a market that is, if you look at the universe, predominantly long-dated provincials and banks, both of which are very much affected by interest rate levels.\u201d<\/p>\n

In a tight-spread environment, she said, it pays to have a highly liquid portfolio and to invest in a broad range of bonds \u201cbecause we\u2019re looking essentially now for pennies under the sofa cushions. There\u2019s not a lot of spread to be had.\u201d<\/p>\n

Read: Factor investing strategies becoming more popular for fixed income: survey<\/a><\/strong><\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Kelsey Rolfe | November 7, 2019 As market uncertainty causes a slowdown in Europe\u2019s economy, an accommodating central bank and negative interest rates are making its bond markets more attractive to institutional investors than those in the United States. \u201cEurope is a...<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/17443"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=17443"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/17443\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=17443"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=17443"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=17443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}