Both Carter and Michalis Ditsas, investment director of Fixed Income, Federated Hermes Limited are looking at investment grade bonds, which Ditsas said have “historically proven resilient and reliable”.
Carter added: “If we do go into a proper recession, investors are not going to want to be in high yield.”
Cyrique Bourbon, head of portfolio strategy at Quintet Private Bank, disagreed, saying he expects European and UK investment-grade bonds to come under pressure as the European Central Bank and BoE continue to raise interest rates, at least in the near term.
“US Treasuries and investment-grade bonds, on the other hand, appear comparatively attractive as the Fed is likely to stop hiking,” he said.
But there is the currency issue, said Guillermo Felices, global investment strategist at PGIM Fixed Income.
“From the point of view of UK investors, investing in foreign assets like treasuries or German bunds involve foreign currency risks. These can be avoided via ’FX hedged’ and other instruments, but that comes with a cost," he said.
"The issue for UK investors is the currency risk of owning foreign assets, which can be avoided via FX hedges or other instruments, but these come at a cost."
For the UK in particular, he added, the Bank of England’s unwinding of its balance sheet combined with the government’s plans to issue a “significant amount” of gilts will impact returns.
“This will likely keep upside pressure on gilt yields as more gilts are issued,” he said.
sally.hickey@ft.com
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