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Payden & Rygel Smiles On US Investment Grade Bonds

Amanda Cheesley

28 February 2024

Natalie Trevithick at US asset manager Payden & Rygel, highlighted this week how investment grade bonds still appear to be shrugging off geopolitical risks, citing the US as the most attractive market.

Trevithick looks at corporate bonds globally. “The US is by far the biggest market, accounting for over 80 per cent of US dollar denominated bonds,” she said in a note. She also thinks that the US has a better macroeconomic environment. “We are seeing cracks of weakness in Europe, so that's making us more cautious. Germany is in a recession, we see further signs of stress in the UK.” 

“But in other areas, we do like some of the Canadian bonds, Canadian banks and Australian banks. We do see value globally on a name-specific basis, but our preferred domicile right now is the US, just given our stronger outlook here,” she continued.

“We just seem to be shrugging off geopolitical risks,” Trevithick added. “Not only the latest war in Israel, but Russia and Ukraine, and even going back beyond that, people have a tendency to be very resilient when looking at these things...The market is still pricing in some Fed cuts next year. We don't think that's really going to be on the cards given the strong growth picture.” 

“But if the Fed were to cut and we were to see underlying interest rates fall, that would actually be positive for bond investors and produce more positive returns. So, in a way, bad news could be good news for credit investors,” Trevithick said.

“We're really not in the recession camp – we’re in the “no landing” camp where growth remains too strong for the Fed to stop raising rates for the near term,” she continued. “We think we can see the re-acceleration of growth again, like we're seeing in GDP and not stall out. We see a pretty good runway for corporates looking ahead.” 

“An important question is whether we are worried that some things that are investment-grade get downgraded to junk status? Is there a reason why we haven't seen more of that as we've been in this higher for longer rate and inflationary environment? Yes, because this is the most, well telegraphed recession never to have happened. People were predicting a recession last year, for earlier this year, or even by the end of this year,” she said.

Trevithick is not alone in her views. UBS Global Wealth Management chief investment office also favors high quality and investment grade bonds in 2024. See more here. 

Headquartered in Los Angeles, with $144 billion under management, Payden & Rygel clients include central banks, pension funds, insurance companies, private banks and foundations. It has offices in Boston, London, and Milan.