3 Ways Asset Owners Are Preparing for Slower Global Growth in Fixed Income


Last week, the Organization for Economic Co-operation and Development (OECD) lowered its estimate on worldwide gross domestic product for a second time in three months. OECD forecasted the global economy would grow by 2.9% versus 3% this year – and a lower 3.3% in 2016 from 3.6%. A major reason for the revised projection is the deceleration of China’s economic engine and its impact on emerging markets. In the OECD’s latest Economic Outlook No. 98, “China’s transition from infrastructure investment and manufacturing and towards consumption and services is one important reason for the decline in commodity prices, and may be reducing its role in global value chains as well.”

Some sovereign funds are attracted to U.S. credit spreads given low-expected returns estimated for traditional bond investments. In addition, many pension economists predict a slurry of U.S. corporate bond defaults. On November 13th, Fitch Ratings released the energy trailing 12-month default rate for October. It was at 5.3%, the highest point since a peak of 9.7% back in 1999.

The large in-house asset owners like OMERS and the Abu Dhabi Investment Authority (ADIA) have extensive capabilities with their fixed income teams.

#1. Continued Thirst for Yield

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