by Sonal Desai, Ph.D., Chief Investment Officer, Franklin Templeton Fixed Income & Patrick Klein, Ph.D., Portfolio Manager, Franklin Templeton Fixed Income
Fixed income sectors that eliminate credit risk seem to be pricing in a recession while sectors willing to take credit risk seem to be much more optimistic. Franklin Templeton Fixed Income CIO Sonal Desai and Portfolio Manager Rick Klein tell us what they think these diverging views imply.
We are pleased to introduce the Franklin Templeton Fixed Income (FTFI) Fifteen, a video series designed to cover relevant market topics in approximately 15 minutes. In this inaugural segment, join FTFIâs Chief Investment Officer Sonal Desai and Portfolio Manager Rick Klein as they discuss the current macroeconomic environment and share their views on interest rates, the banking sector turmoil, the US debt ceiling and more.
A few of the topics covered include:
- The US Federal Reserve (Fed) raised interest rates by 25 basis points (bps) at its May meeting, as had been expected. The accompanying statement, however, indicated that the Fed would now make policy decisions on a âmeeting-by-meetingâ basis going forward and signaled that it would be willing to pause its hiking cycle if that was deemed appropriate. Nevertheless, it seems the market is not pricing in a pause, but rather multiple rate cuts by the end of 2023. So who is correct, the Fed or the market?
- Weâre seeing a dislocation in the market; fixed income sectors that eliminate credit risk seem to be pricing in a recession, while those willing to take credit risk seem to be much more optimistic. Sonal and Rick tell us what they think these diverging views imply and how they are consequently positioning portfolios. Are current spreads across fixed income assets appropriately priced taking into account the overall economic environment and growth outlook?
- We have witnessed a few regional lenders fail this year and the entire sector has been under increasing pressure, driving a lot of investor concerns. Sonal and Rick share their outlook for the banking sector and credit availability, as well as what impact they believe this could have on the macroeconomic environment and fixed income markets specifically. Is this the start of a credit crunch or banking crisis?
- As we have seen several times now over the past decade, the United States is facing another debt ceiling standoff with a potential default as soon as the end of May. Sonal and Rick tell us if they are concerned about a historic default on US debt. How could this impact fixed income markets?
To listen to the entire conversation as well as hear a few surprise insights, click the link to watch the inaugural FTFI Fifteen.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the portfolioâs value may decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bondâs issuer, insurer or guarantor, may affect the bondâs value.
IMPORTANT LEGAL INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.
Data from third party sources may have been used in the preparation of this material and Franklin Templeton (âFTâ) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. â
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