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Where are the opportunities in the volatile fixed income market?

“The second change on margin, which the Bank of Canada discussed in its announcement, is a matter of concern in Europe and the fact that an unprovoked invasion of Ukraine is a major new source of uncertainty,” he said. “So that banks can be more lenient due to this change and perhaps slow down the aggressiveness of rate hikes.”

“The invasion of Ukraine is putting further pressure on prices of both energy and food-related goods,” the bank said, so “inflation is now expected to be higher in the near term than projected in January.”

Messman said: “I have been talking to investors and the main message is that financial assets really need to adjust to go from a zero rate environment to 2.5%. This is the transition that creates volatility in financial assets. So, for financial assets, equities and corporate bonds, it is a transitional period.”

He said the selling of government bonds has affected all fixed income. The investment grade was down 5%, while the high yield was down 3-4%, but the credit spread between corporate bond yields and government bond yields had not changed. Although it has been down year over year, he said it has been very stable from a flow perspective

In all of this, Messman said the credit class looks good because the leverage and balance sheet are good.

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