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The bond ultimatum: responding to interest rate normalisation

Guest blog: Carmignac 

With central banks firmly on the path towards normal interest rates, the ability to demonstrate flexibility and resilience in all environments will be crucial for professional investors. An active and conviction-driven approach can help with the challenges ahead.

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For the past six years, global bond markets have been fuelled by investor confidence in the ability of central banks to return the world’s most prominent economies to their pre-crisis state. The normalisation of monetary policies now appears to be inevitable. However, the unwinding of such policies is bound to have an impact on markets and, given the unprecedented nature of the experiment and in light of the risks posed by ending such massive liquidity injections, it remains virtually impossible to predict the results.

It pays to be flexible

It is therefore now more vital than ever for bond fund managers to seize investment opportunities by adopting an unconstrained, non-benchmarked bond management philosophy. We would argue that the best approach would be based on strong long-term convictions and with a flexible allocation in order to optimise risk-adjusted returns. Such flexibility can liberate the manager from the benchmark index and present opportunities to favour individual asset classes when required. Such an approach should also incorporate a bottom-up dimension to generate performance, with a team of experienced analysts who work to extract alpha from credit, emerging market debt and currencies, as well as interest rate curves.

The benefits of taking comprehensive investment approach

Ultimately, operating within a large investment universe is the most essential part of this flexibility, as is the ability to capture value in both sovereign and credit bond markets, and on global currencies, without almost any geographical or sector constraints. In addition, being able to deliver a balanced and rigorous portfolio construction is essential when attempting to navigate through turbulent times. Such portfolio construction will be able to identify the appropriate investment style for each market environment, according to the position in the global investment cycle.

Find out more about a unique fixed income fund that implements interest rate, credit and currency strategies across the globe

FOR PROFESSIONAL ADVISERS ONLY. THIS MATERIAL IS NOT SUITABLE FOR RETAIL INVESTORS.
​This article may not be reproduced, in whole or in part, without prior authorisation from the management company. This article was prepared by Carmignac Gestion and/or Carmignac Gestion Luxembourg and is being distributed in the UK by Carmignac Gestion Luxembourg UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013). It does not constitute a subscription offer, nor does it constitute investment advice. The information contained in this article may be partial information, and may be modified without prior notice.
CARMIGNAC GESTION Luxembourg – Subsidiary of Carmignac Gestion. UCITS management company (CSSF agreement of 10/06/2013), Public limited company with a share capital of € 23,000,000 – R.C. Luxembourg B 67 549.​
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