Fixed income: Buy US financials
When we look forward into 2013 we see a continuation of what we have experienced over the past couple of years.
Globally, growth is likely to stay low, inflationary pressures will remain muted and central banks will maintain their extremely lose unconventional monetary policy and are more than likely to ease policy further. This remains a positive environment for fixed income as the two threats to a bond investor, higher interest rates and higher inflation, are not on the horizon.
One credit sector that we have allocated to in recent weeks is US financials as we expect that the sector will perform well, supported by global central bank policy actions, continuing improvement in credit fundamentals and the positive sector technicals, especially around limited senior debt supply.
Australia remains one of our favourite developed bond markets. Their 10-year government bond yields 1.4 per cent more than a 10-year UK gilt, while their central bank still has room to cut interest rates if required.
Both emerging markets and some developed nations, like Australia, offer superior creditworthiness verses traditional developed governments, benefiting from lower fiscal deficits and lower debt-to-GDP ratios.
This is reflected in credit rating actions, in contrast with the widespread downgrade trend across developed nations, many emerging market issuers are seeing rating upgrades.
Iain Stealey is co-manager of the JPMorgan Strategic Bond fund