Weekly Market Review
In this recap, we summarize market performance and market moving news from the prior week.
Each quarter, PGIM Fixed Income publishes an outlook describing their views on the economy, as well as their expectations for sectors within fixed income markets. Here’s where they see value (and where they don’t) in the coming quarter.
|Developed Market Rates||Constructive||The peak in yields is likely behind us and easing concerns over accelerating inflation should bring long end rates down further, limiting the potential increases in other global developed market rate complexes. Meanwhile, we'll watch for further volatility in the front end as the market comes to terms with a Fed that is going to be patient with its rate liftoff.|
|Agency MBS||Underweight||Underweight MBS as we start Q3 with a preference away from 30-year 2% issues, which remain heavily supported by the Fed. We also remain focused on specified pools vs. TBAs, and we favor the 20-year sector as well.|
|Securitized Credit||Positive||Positive on high-quality, senior securitized tranches and select subordinated issues of single asset/single borrower CMBS, ABS, and non-agency credit risk transfer RMBS. We remain cautious of mezzanine risk given current valuations in CLOs and conduit CMBS.|
|IG Corporate Debt||Positive||Modestly positive given supportive central bank policies, favorable credit fundamentals, and strong technicals. Favor U.S. money center banks as well as select BBB-rated issues, cyclical credits, and fallen angels/crossovers.|
|Global Leveraged Finance||Neutral||Relatively balanced over the short term given how much spreads have tightened, but backdrop remains favorable given low defaults, improving fundamentals, and demand for spread product. We believe actively managed credit selection will be a differentiating factor between managers.|
|Emerging Market Debt||Constructive||Differentiation will be key. Hard currency sovereigns and corporates should outperform, and we see scope for both higher yield and high-quality issuers to stand out. The outlook for local bonds and EMFX is more mixed; much is priced into local bonds, and there are attractive opportunities in select curves. EMFX offers select value given our growth and USD outlook, but it may take longer to play out.|
|Municipal Bonds||Constructive||Constructive based on supportive technicals and a generally favorable credit profile for municipal credits.|
The full PGIM Fixed Income Market Outlook is available for financial professionals.
Jennison Associates explains why they believe growth will regain market leadership and technology will lead the way forward.
QMA explains why they believe transitory inflation may last longer than desired and why value stocks may have more room to run.
Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Commercial mortgage-backed securities (CMBS) are a type of mortgage-backed security backed by commercial mortgages rather than residential mortgages. They are composed of a variety of loans, each of which represents different property sizes and locations. These loans are pooled and are broken into tranches of risk that are sold to investors. High yield bonds, known as junk bonds, are subject to a high level of credit and market risk. International bonds are bonds issued by foreign corporations or foreign government agencies. Emerging market bonds are local currency bonds issued by emerging market governments. Emerging market countries may have unstable governments and/or economies that are subject to sudden changes. These changes may be magnified by the countries’ emergent financial markets, resulting in significant volatility to investments in these countries. Investment-grade corporate bonds are bonds with a credit rating of AAA to BBB as rated by Standard & Poor’s, or Aaa to Baa as rated by Moody’s. Mortgages refer to mortgage-backed securities (MBS), which are composed of a variety of residential mortgage loans, each of which represents different property sizes and locations. These loans are pooled and are broken into tranches of risk that are sold to investors. Collateralized loan obligations (CLOs) are securities backed by a pool of debt, often low-rated corporate loans. Municipal bonds are tax-exempt bonds with a maturity of at least one year, including state and local general obligation, revenue, insured, and pre-refunded bonds. Unlike other investment vehicles, U.S. government securities and U.S. Treasury bills are backed by the full faith and credit of the U.S. government, are less volatile than equity investments, and provide a guaranteed return of principal at maturity. Asset allocation and diversification do not assure a profit or protect against loss in declining markets. Past performance is no guarantee of future results.
The views expressed herein are those of PGIM Fixed Income investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither Prudential Financial, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.
PGIM Fixed Income is a unit of PGIM, Inc. (PGIM), a registered investment advisor and Prudential Financial company. © 2021 Prudential Financial, Inc. and its related entities. PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
1050263-00001-00 Ed: 07/2021