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Rethinking the Consensus Trade in Fixed Income

March 2019
by Mark H. Sullivan, CFA, CMT, and Martin Harvey, CFA of Wellington Management

As central banks unwind quantitative easing and we experience more fiscal policy and regulatory reform, it may be time to reconsider fixed-income allocations

Since 2011, fixed-income asset returns could primarily be traced to a single factor: unconventional policy actions of the world’s central banks. Central banks across the globe undertook extraordinary measures, such as quantitative easing (QE), in an effort to stimulate their economies, and markets grew accustomed to these artificially low interest rates.

The purchases made by central banks were price insensitive, made on a consistent basis, and not made with the objective of turning a profit. We call this period in the economic cycle “Goldilocks.” The consensus fixed-income trade during this Goldilocks period was to be long fixed-income credit exposure, primarily through income-oriented funds. Many of these funds not only have extensive credit exposure, but are also managed to a traditional fixed-income benchmark.

Mark H. Sullivan, CFA, CMT
Senior Vice Managing Director Fixed-Income Portfolio Manager at Wellington Management
Martin Harvey, CFA
Vice President, Fixed-Income Portfolio Manager at Wellington Management

Investing involves risk, including the possible loss of principal. ● Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise bond prices generally fall. 

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