The State of Fixed Income Markets

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Credit Allocation: What's Rich, What's Cheap, and Everything Else in Between Presented by Joe Auth Joe Auth, Head of GMO Developed Fixed Income, reviewed the evolving landscape of corporate credit markets, with a particular focus on the relative richness of corporate spreads (high yield and investment grade) which remain historically tight.

Fiscal Dominance in the USA: Investment Lessons from the Emerging Markets Presented by Tina Vandersteel In a fiscal dominance condition, the government forces the central bank to finance the deficits by printing money, leading to inflation. With an EM lens, we observe that political interference in monetary policy comes in many shapes and sizes, and we acknowledge that the U.S. Fed, on its own, greatly expanded its remit in the post-GFC and COVID periods. In this session, Tina Vandersteel explored the concept of fiscal dominance in the U.S., drawing parallels between the U.S. and emerging markets to highlight potential investment lessons for navigating the current U.S. environment.

No Stone Unturned: The Opportunity in EM Blended Currency Debt Presented by Victoria Courmes, Garrett Sullivan Emerging market local currency debt generally offers attractive long-term investment opportunities—but our read on current valuations suggests a generationally attractive entry point for EM local debt. In this session, Victoria Courmes and Garrett Sullivan reviewed the case for investing in emerging markets blended currency debt, especially for USD-based institutional investors. They argued that the critical success factors for investment are all currently favorable, supported by historical performance data, valuation metrics, and sovereign risk analysis.

Systematic Credit Investing: A Quantitative Edge in a Traditionally Fundamental Asset Class Presented by James Donaldson, Rachna Ramachandran The evolution of credit markets over the last two decades has created a fertile environment for systematic strategies. During this session, James Donaldson and Rachna Ramachandran examined how a systematic (quantitative), multi-factor approach to credit investing can provide an edge in maximizing outperformance chances, minimizing left-tail (extreme loss) risks, and ensuring repeatability and scalability in the investment process.

 

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