Insights
By: Nicholas Mandrinos
Supportive technical backdrop for fixed income – Nicholas Mandrinos
Still a solid buyer base for income-generating assets
The US economy is sitting on large pools of liquidity. Based on publicly available information, the total net assets of US Money Market Funds have ballooned to USD6.4tn as at the end of September 2024, up from USD 3.6tn at the end of 2019[1]. Meanwhile, the total amount of deposits across commercial banks in the US have reached USD 17.7tn as at the end of December 2023, up from USD 13.5tn at the end of 2019[2].
As the Federal Reserve embarked on its policy-tightening cycle, lifting rates from 0.25% in early 2022, reaching 5.50%, the yield in this cash pile has also grown at an increasing pace over the last 24 months. Joining this cash on the side-lines are fixed income assets, which are also generating increasing amounts of income as a result of coupon payments.
Whether or not all this cash will stay on the side-lines, as rates start to drift lower, remains to be seen. From a fixed income investor’s perspective, though, the technical picture points to the fact that there is a solid buyer base for income-generating assets.
Our focus across portfolios has primarily been on core sovereign bonds as well as corporate bonds, both offering attractive yields. On the corporate side, we have allocated to investment grade bonds which are issued by companies with healthy balance sheets, these businesses have solid leverage and interest coverage ratios and at the moment look very solid, ready to withstand any potential slowdown the global economy may face.
Nicholas Mandrinos is a Partner of Stonehage Fleming Investment Management, he has overall responsibility for both the management of all segregated fixed income and cash management portfolios, as well as the selection and monitoring of investments in third party fixed income funds. He also heads up the Fund and Security Selection Committee and has over 10 years’ experience managing fixed income portfolios.
Disclaimer
All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment.
Stonehage Fleming Investment Management is regulated and authorised by the Financial Conduct Authority (FRN. 194382).
[1] Source: Investment Company Institute
[2] Source: Federal Deposit Insurance Corporation