Eigen, manager of the firm’s Income Opportunities Fund, said that despite this backdrop investors can still ‘profit from the good and the bad, while avoiding the ugly’.
“Investors seeking fixed income opportunity must take into account today’s regime of ultra-low global yields and weak market liquidity,” he said. “With the Federal Reserve moving towards an interest rate hike and the dramatic reduction trading capacity, investors need to redefine what constitutes value and safety as well as when and how to deploy capital into markets distorted by multiple rounds of quantitative easing.”
According to Eigen high yield sits in the ‘good’ category. An improving U.S. economy is constructive for credit, with recent volatility has been primarily driven by the slowdown in China. While this has hit commodities and by extension high yield bonds generally, away from commodities there is a ‘significant incongruence’ between steady high yield fundamentals and falling prices.
Eigen notes that High yield has shown resilience through previous rising rate cycles and spreads excluding commodity-related industries look attractive at over 500bps with defaults low.
Another bright spot is the securitised market with value in the non-agency mortgage market,” Eigen says. There are also ‘exceptional opportunities’ in private commercial real estate lending.
