CONTRIBUTORS
John Beck
Director of Global Fixed Income,
Portfolio Manager
United Kingdom
Stuart Lingard
Senior Client Portfolio Manager
Franklin Templeton Fixed Income
Alex Lee
Head of Canada ETF Product Strategy
Franklin Templeton Investments
Juan Gerardo Cruz
Client Portfolio Analyst
Franklin Templeton Fixed Income
Key takeaways
- The aggressive monetary policy tightening of 2022 and 2023 helped create an attractive entry point for fixed income investors in 2024.
- Yields remain elevated versus historical levels, while global central banks embarking on monetary policy easing should provide a tailwind for bond portfolios going forward.
- We believe that now is the time to benefit from these compelling yields, ahead of potential declines.
- At the same time, opening up portfolios to include global investment opportunities can help to achieve higher potential risk-adjusted returns.
Introduction
Geopolitical turmoil, surging inflation and monetary policy tightening provided a challenging backdrop for bond investors in 2022 and 2023. However, we believe that the rest of 2024 offers a much more constructive environment for fixed income investing, with a multitude of potential opportunities not only across North America but also Europe and many emerging markets (EMs).
In this publication, we would like to explain why, in our view, now is an opportune time to invest in global bonds, which can provide additional return potential versus a domestic bond portfolio. In the following, we aim to demonstrate that there are benefits to diversifying a portfolio utilizing different sovereign issuers and currencies.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
Currency management strategies could result in losses to a portfolio if currencies do not perform as expected.