Geopolitical shocks, high government debt and inflation persistence are seen as the greatest risks for fixed income investors over the next 12 months by wealth managers and advisers.
Research from Nedgroup Investments found 45% of the sample spoken to pointed to geopolitical instability and related energy price volatility as the greatest risks for bond investors.
This was closely followed by growing government debt issuance (44%), and persistent inflation and interest rate volatility (42%).
Central bank divergence and currency effects, such as policy differences between the European Central Bank and the US Federal Reserve, were also seen as a significant risk by 38% of respondents, as was the potential for credit deterioration (32%).
Nearly a third (29%) said heavy corporate bond issuance linked to AI-driven capital expenditure, is concerning.
In terms of opportunities in the market despite the potential problems, 57% of the wealth managers and advisers spoken to said new issuance, including from high-quality corporates, will provide opportunities to pick up incremental spread.
This was followed by 55% saying sector and issuer divergence will be key in creating alpha opportunities. Short-duration and high-quality carry strategies, and central bank divergence, were both mentioned by 49%.
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Tom Caddick, managing director at Nedgroup Investments (pictured), said: “The fixed income market continues to navigate a highly complex backdrop, with advisers and wealth managers clearly recognising that geopolitical uncertainty, elevated government borrowing and persistent inflation remain the defining risks over the next 12 months.
“Recent events have reinforced how quickly market conditions can shift, making careful risk management and active management more important than ever.
“At the same time, it’s encouraging that advisers are looking beyond the headline risks and identifying compelling opportunities. Increased issuance from high-quality corporates, alongside greater dispersion across sectors and issuers, should create a richer environment for active managers to add value.”
