Advisers see geopolitics and government debt as biggest fixed income market risks

Financial advisers and wealth managers see geopolitical instability, government debt, and persistent inflation as the greatest risks facing the fixed income market over the next 12 months, analysis from Nedgroup Investments has shown.

Almost half (45 per cent) cited geopolitical shocks and energy price volatility as among the biggest risks for fixed income in the coming year, followed closely by growing government issuance (44 per cent), and persistent inflation and interest rate volatility (42 per cent).

Central bank divergence and currency effects were identified as risk factors by 38 per cent of advisers and wealth managers, while the potential for credit deterioration was cited by 32 per cent.

Nearly a third (29 per cent) of respondents were concerned about heavy corporate bond issuance, linked to AI-driven capital expenditure.

Despite these perceived risks, 57 per cent of advisers and wealth managers believed that new issuance, including from high-quality corporates, would provide opportunities to pick up incremental spread.

Other opportunities for the fixed income market included sector and issuer divergence creating alpha opportunities (55 per cent), short-duration and high-quality carry strategies (49 per cent), and divergence between central banks creating opportunities in cross-market allocations (49 per cent).

“The fixed income market continues to navigate a highly complex backdrop, with advisers and wealth managers clearly recognising that geopolitical uncertainty, elevated government borrowing and persistent inflation remain the defining risks over the next 12 months,” said Nedgroup Investments managing director, Tom Caddick.

“Recent events have reinforced how quickly market conditions can shift, making careful risk management and active management more important than ever.

“At the same time, it’s encouraging that advisers are looking beyond the headline risks and identifying compelling opportunities.

“Increased issuance from high-quality corporates, alongside greater dispersion across sectors and issuers, should create a richer environment for active managers to add value.

“In periods like these, disciplined credit research and a selective approach to portfolio construction can help investors uncover attractive risk-adjusted returns while remaining resilient to ongoing market volatility.’’

---