What You Need to Know
- Advisors ranked Treasurys the least attractive fixed income sector in Q1.
- Most advisors said they expected long-end interest rates to rise over the next 12 months; PGIM takes the contrarian view.
- Most advisors say they'll change their investing strategies based on the political landscape.
What are financial advisors thinking about the fixed income market and interest rates these days? Has the new political landscape prompted them to make changes to their investment strategy?
These are questions PGIM Investments explored in its latest quarterly “On the Minds of Advisors” survey, released last week.
The questions were part of Escalent’s Cogent Beat Advisor data collected between Feb. 24 and March 7 from a representative sample of 517 financial advisors.
The survey found that advisor perspectives on the fixed income market have shifted slightly since the fourth quarter.
Advisors continued to rate investment-grade corporates, municipals and high yield as the most attractive fixed income sectors overall, but ranked municipal bonds and high yield higher than investment-grade corporates in the first quarter.
In contrast, advisors were avoiding U.S. Treasurys, ranking them as the least attractive sector, a significant downgrade from the fourth quarter.
Here’s the degree to which fixed income sectors appealed to advisors in the first quarter compared with the previous one:
- Municipal bonds: 45% in Q1 vs 49% in Q4
- High yield bonds: 43% vs 47%
- Investment grade corporate bonds: 41% vs 51%
- TIPS: 37% vs 31%
- Emerging market debt (local currency): 30% vs 26%
- Bank loans: 28% vs 24%
- Emerging market debt (hard currency): 27% vs 21%
- Developed non-U.S. market bonds: 27% vs 24%
- Agency mortgage backed securities (MBS): 23% vs 23%
- Commercial mortgage backed securities (CMBS): 20% vs 18%
- Asset backed securities (ABS): 15% vs 17%
- U.S. Treasurys: 14% vs 20%
The report said that despite the drop in advisor sentiment, PGIM Fixed Income managers remain modestly positive on investment-grade corporates, given central bank support and prospects for an economic recovery.