Powered by MOMENTUM MEDIA
subscribe to our newsletter

Global economy to avoid recession in 2020

Sarah Kendell
28 November 2019 — 1 minute read

Global economic growth is likely to continue slowing in the coming year, but a global recession should be avoided, driving a favourable investment environment for high-yield bonds, according to Neuberger Berman.

The investment manager’s head of intermediary distribution, Matt Thompson, told SMSF Adviser while there was still a moderate risk of economic contraction in the US in 2020, fundamentals in Europe in particular were looking healthy, leading to plenty of investment opportunities for high-yield bond investors.

“In 2020, we continue to see a favourable risk return profile for global high-yield bonds as yield spreads are compensating investors for a relatively benign default environment,” Mr Thompson said.

Advertisement
Advertisement

“While global economic growth is slowing, we see the risk of a US or global recession in 2020 remains low to moderate. We see opportunities in high-yield bonds in European markets where company fundamentals remain strong.”

Mr Thompson said continuing low rates in Australia would drive investors increasingly towards high-yield bonds as an option to boost income in their portfolio.

“Traditionally, Australian investors have not had access to many fixed income product options. While many investors may have invested in term deposits, its returns are linked to interest rates which have been low in recent years,” he said.

“The current low-rate environment means investors are increasingly looking for yield, and as we see more fixed income products enter the market, we expect investors to be increasingly knowledgeable about fixed income and asset classes such as high-yield bonds.”

Mr Thompson said business conditions were a key indicator of the investment outlook for high-yield bonds, which were less tied to interest rates than their investment grade peers.

“Unlike investment grade bonds where returns are linked to interest rates, high-yield bonds are more associated with corporate fundamentals and the ability for corporate issuers to pay their coupons,” he said.

“As such, the main risk associated with the asset class is when a company’s fundamentals are deteriorating and when a corporate issuer defaults.”

Global economy to avoid recession in 2020
smsf logo
smsfadviser logo

Are you up to date with the legislative changes from 1 July? Contribution cap increases, super guarantees, age increases, SG rate increases. The budget announcement changes. Don’t be caught off guard by your clients’ questions. Prepare for any scenario with the SMSF Foundations course. 21 CPD hours available. Learn more

Arm yourself with the critical information that you need to ensure you and your clients continue to thrive in today’s changing environment at the free-to-stream SMSF Adviser Technical Strategy Day. Live streamed directly to you in October over three days, this event is jam-packed with expert-led sessions to arm you for success by providing the latest updates on regulatory and legislative changes impacting SMSFs. Secure your free spot today, visit www.smsfstrategyday.com.au

join the discussion

Latest poll

Do you have clients that are aged 65 or 66 planning to trigger the bring forward rules?

SUBSCRIBE TO THE
SMSF ADVISER BULLETIN

Get the latest news and opinions delivered to your inbox each morning

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.