The Iran conflict reinforced the case for Global Investment Grade Bonds

Amid the current global growth backdrop, is it time to go for global 
Investment Grade (IG) bonds?

• The Iran conflict reinforced the case for Global IG: Despite a material geopolitical & energy shock, credit has remained orderly, with the adjustment expressed far more through rates than through disorderly spread repricing.
• Higher all-in yields have materially improved the entry point, returns do not need to rely on spread compression; carry & income may do more of the work.
• If growth weakens, duration can potentially provide an additional offset, making IG one of the more balanced ways to stay invested across a wide range of outcomes.
• This is a strong backdrop for actively managed Global IG, particularly relative to passive approaches that lack dynamic risk management or more risky asset classes that may exhibit greater volatility with less reliable income streams.

Is it a good entry point from a rates and credit spread perspective?

• The sharp rise in yields, driven especially by front-end risk-free rates has improved forward-looking return potential from an income perspective.
• However, there is uncertainty with regards to the duration & impact of the Middle Eastern conflict. We are likely in a higher-for-longer environment, as central banks remain focused on anchoring inflation expectations even at some cost to growth. That said, we do not expect the full degree of rate hikes priced by markets in Europe and the UK to materialise.
• From a spread perspective, markets still look relatively composed. Spreads have widened only modestly through the conflict and, in some areas, have proven more resilient than many expected given the scale of the macro shock and starting valuations.
• The key point is that Global IG does not require major spread tightening to remain attractive: current yield levels have provided a meaningful return cushion.

Some investors are worried about the risk of stagflation — how would you address this concern?

• Stagflation is the central macro risk, driven by higher energy prices, persistent inflation pressure and a more hawkish central bank reaction function than markets had expected at the start of the year.
• But that does not invalidate the case for Global IG, an asset class that combines income, quality and duration in a way lower-rated credit does not.
• Three features matter in this environment:

-  Higher starting yields could provide a stronger buffer against spread volatility;

-  Investment-grade issuers are generally better placed to absorb slower growth and tighter financing conditions;

-  Government bond duration could help cushion returns if growth disappoints more sharply.

We would therefore frame Global IG not as immune to stagflation, but as one of the more resilient asset classes through it — especially when managed actively and with a strong emphasis on risk management and issuer quality.


Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.