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The sell-off in bond markets this year has driven yields to levels that merit closer attention, says Victoria Whitehead, senior portfolio manager for European investment-grade (IG) credit. Victoria sees eurozone IG credit as attractive on the basis that risk premia are commensurate with much higher default rates than she thinks will actually materialise.  

She argues that many issuers with an IG rating will be going into the downturn from a position of strength and therefore a spike in defaults in the segment looks much less likely than for high-yield credit. This should allow credit spreads to tighten. “A lot of bad news is priced in,” she tells Andrew Craig, co-head of the investment insights centre, in this Talking heads podcast.

For Victoria, stubbornly high inflation represents the main risk to the IG segment. At a portfolio level, banks remain her favourite sector pick.

You can also listen and subscribe to Talking heads on YouTube and read the transcript.

Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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