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CONTRIBUTORS

David Zahn, CFA, FRM

Head of European Fixed Income,
Portfolio Manager
United Kingdom

Angelo Formiggini

Economist,
International Research Analyst

Preview

Investors looking to allocate funds to developed-market bonds often consider opportunities in Europe and the United States. In this paper, we highlight the uniqueness of the European fixed income market and draw some comparison with the US market.

Key takeaways:

European sovereign bonds: The European sovereign bond market is diverse and offers opportunities for investors to benefit from different yield curves, economic and fiscal fundamentals, and ECB policy interventions.

European corporate bonds: The European corporate bond sector is also varied and has defensive characteristics, such as shorter duration, lower leverage and higher quality than its US counterpart. The sector also has attractive valuations and robust inflows.

Why now? The ECB is expected to cut rates ahead of the Fed, and more aggressively, which should support European fixed income performance. Investors can lock in the historically high yields and take advantage of the alpha potential in the European bond market.

In our view, now is the time to lock in the historically elevated yields, and the European bond market offers a multitude of compelling opportunities.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. To the extent a fund invests in companies in a specific country or region, it may experience greater volatility than a fund that is more broadly diversified geographically.

Active management does not ensure gains or protect against market declines.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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