The outlook for European fixed income

This article is part of
Guide to investing in Europe

He acknowledges: “Positive yield curves do offer some protection against monetary tightening, while strong fundamentals support exposure to credit markets. 

“In particular, short duration credit strategies, with a focus on high yield and emerging market debt, remain an attractive choice for fixed income investors as they tend to derive returns from income and tend to limit drawdowns when volatility picks up.”

While bond markets have seemingly been able to shake off any concerns over the political situation in Catalonia, he says there are other risks they may react more strongly to, such as Brexit.

David Zahn, head of European fixed income at the Franklin Templeton Fixed Income Group, confirms: “While we don’t believe the disagreements in Spain are likely to have a major impact on financial markets, other political uncertainty such as Brexit negotiations continue to make little progress and if talks break down, we would expect gilt yields to be significantly lower and get close to lows again.

“Europe never seems to have a dull moment and, over the next 12 to 18 months, we believe this continued volatility will present opportunities for managers to capture opportunistic pockets of yield.”